Banks and Other Financial Institutions

1. 17-1 Banks and Other Financial Institutions

2. 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 The Banking system

3. 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

4. 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. Federal reserve activities cont.

5. 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. Banking and the economy

6. 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

7. 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

8. 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 Deposit institutions

9. 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

10. 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

11. 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 Non-Deposit financial institutions

12. 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 Selecting a financial institution

13. 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. Safety

14. 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 Convenience

15. Financial services have costs Compare your needs with the price you pay Remember seemingly low fees add up overtime. Fees and Charges

16. 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 Restrictions