BANKS AND OTHER FINANCIAL INSTITUTIONS

17-1

THE BANKING SYSTEM

The Federal Reserve system-is a bank for banks You cannot personally open an account

Federal reserve system- set up by the government to supervise and regulate member banks. National banks must join State banks may join Banks that join are known as member banks The United states is divided up into 12 federal

reserve districts with a central federal reserve bank in each district see page 423

FEDERAL RESERVE ACTIVITIES

Holding reserves- Banks cannot lend all Certain amount on hand Federal reserve holds reserves

A bank will only lend a certain percent of deposits. Example on page 423

FEDERAL RESERVE ACTIVITIES CONT.

Clearing checks in different cities Clearing refers to the paying of checks

among different banks. The fed process millions of checks per day Insure that the correct amounts are being

deducted.

BANKING AND THE ECONOMY

Banking activities Build homes Start new businesses Plant crops Finance educations Buy goods Pave streets Invest for retirement Build Hospitals Buy new business equipment

The money you deposit makes investments possible. Your money does not just stay in the bank.

DEPOSIT INSTITUTIONS

Deposit institutions-accept deposits from people and businesses and use them to finance their business.

Commercial banks Most common bank Also called full service banks They offer a wide variety of financial services They offer checking accounts, provide savings

accounts, make loans to individuals and businesses and offer other services.

Owned by a person or company

DEPOSIT INSTITUTIONS Savings and loan associations

Specialize in savings accounts and making home loans Recently have expanded to a variety of financial

services Are now more like a bank. Owned by private person or company

Mutual savings banks Owned and operated for the benefit of its depositors Profits are distributed in proportion to the amount of

business each participant does with the company. Mainly savings and home loans Located mainly in the northeastern part of the United

States

DEPOSIT INSTITUTIONS

Credit Unions User owned, not for profit Usually part of a labor union, government

agency, company or a certain profession. Usually savings and loans When a person deposits money they

become a member

NON-DEPOSIT FINANCIAL INSTITUTIONS Non deposit financial institutions do not take or hold

deposits. They earn their money selling specific services or polices

Life Insurance companies People buy policies to insure security for their

dependants They also offer investments

Investment companies People can choose investment opportunities for long

term growth of their money Many investors own shares of one of the more than

15,000 mutual funds worldwide Investment companies make these mutual funds

available

NON-DEPOSIT FINANCIAL INSTITUTIONS Consumer Finance companies

Specialize in making loans for long lasting or durable goods such as cars and refrigerators and for financial emergencies.

They do not accept savings deposits Mortgage companies

Provide loans for buying houses or property

NON-DEPOSIT FINANCIAL INSTITUTIONS Check cashing outlets

People who may not have banking accounts will use check cashing outlets

Offer services such as tax filing, money orders, private postal boxes, utility bill payment and the sale of bus and subway tokens

They charge you a fee for their services Pawnshops

Make loans based on the value of some tangible object such as jewelry

They usually charge a high fee

SELECTING A FINANCIAL INSTITUTION Services offer- Most typical service offered

are: Savings accounts Checking and payment accounts Loans and other credit plans Other services, such as safe deposit boxes,

trusts, and investment advice You must determine what services you need Find the highest interest rate for savings Find the lowest for loans

SAFETY

Federal Deposit Insurance corporation (FDIC) Protects depositors money in case of failure of a

bank or financial institution. Insures all accounts in the same name at each bank

up to the amount of $250,000. Almost 99% of banks have FDIC insurance

The National Credit Union Administration (NCAU) Regulates credit unions Insures accounts up to $100,000

Most banks have federal insurance but do not assume that every one does.

CONVENIENCE

Do you want 24 hour services? Do you want branch offices near your

home or work? You will need to ask yourself these

questions when choosing a bank

FEES AND CHARGES

Financial services have costs Compare your needs with the price you

pay Remember seemingly low fees add up

overtime.

RESTRICTIONS

Some accounts you must have a minimum amount in the account at all times i.e. for a free checking account you must

keep $500 at all time. You are losing a chance to earn interest if you were to have more in your savings.

If you must keep money on deposit for 2 or more years to earn a higher interest rate you are restricted from using those funds