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Banks 101

Banks 101. Banking & Credit Mr. Yates. So what is a “bank” anyway?. Banks have been around about as long as civil society; they operated as money lenders as far back as the Roman Empire.

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Banks 101

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  1. Banks 101 Banking & Credit Mr. Yates

  2. So what is a “bank” anyway? • Banks have been around about as long as civil society; they operated as money lenders as far back as the Roman Empire. • The first government-licensed deposit bank is believed to have been established in Genoa, Italy, around 1400.

  3. The Palace

  4. Purpose of Banks • Banks put a community's surplus funds (deposits and investments) to work by lending to people to buy homes and cars, to start and expand businesses, to put their children through college, and for countless other purposes. • Banks are vital to the health of our nation's economy.

  5. What services do they provide? • There's a whole range of services and activities a bank might offer: • savings and checking accounts • investment services • personal loans, business loans, mortgages, car loans, boat loans, • Internet banking, as well as financing of stock issues and mergers by investment bankers

  6. How do banks make money? • It's all about the spread. • That's the difference between the interest rate a bank pays on money it borrows (from the government or other banks, for example) • and the rate it charges the people and companies that borrow money from the bank.

  7. Mo’ Money • Banks also make money from the fees they charge on accounts and transactions. • For many major banks, a big chunk of their revenue comes from interest and fees charged on credit cards.

  8. annnnd mo’ money… • Banks also make money from their own investments — that's where the trouble came in for many of them in the ongoing crisis.

  9. So how much money is out there? • Tough one to answer… • Actual tangible money almost equates to petty cash • In the 90’s there was already $3.3 Trillion out there

  10. Money out there • While currency is still the most popular method of payment, it accounts for only 1% of the value of all transactions. • And the big money travels via "wire transfer" between banks--0.1% of the transactions, but 80% of the dollars.

  11. And the government creates the money right? • Well, yes, and no…- The government doesn't create money, private banks do. • Banks “create” money by making loans.

  12. Creating Money… • Suppose I put $100 in my checking account. • The bank bets I won't draw it out for a while and lends $85 of my $100 to someone else. • That person has $85 in folding green and I've got $100 in checking that theoretically I can draw out at any time. • Behold, the local money supply has bloomed from $100 to $185.

  13. Resources • http://www.mainstreet.com/article/money/investing/banking-101-how-banks-make-their-money • http://www.straightdope.com/columns/read/719/how-much-money-is-there

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