MONEY & BANKING

1. MONEY &BANKING

2. MONEY

3. Functions of Money • Medium of exchange • Exchange $ for g & s • Standard of value • Allow for value comparison • Store of value • Saving for future use

4. Characteristics of Money • Our $ is generally acceptable • Can be counted and measured accurately • Durable • Convenient • Inexpensive to produce • Easy to control supply in our economy

5. The Value of Our Currency • Our currency has a value because the government says it does!!

6. Our bankingsystem

7. Kinds of Money • Currency • Checks (= demand deposits) • Traveler’s checks

8. Banks and the Money Supply • Money supply– total amount of $ available for use as a medium of exchange • Banks– VITAL in our economy • Banks hold currency and offer demand deposit services

9. Bank Services • Checking accounts • Easy…secure..good records • Savings accounts • NOT a demand deposit… notice for large withdrawals required • Earn interest • Allow banks to make loans • Loans • Most important role in economy • An amount of $ borrowed for certain period of time • Pay $ back PLUS interest • Helps economy to grow… helps people to start or expand businesses

10. Banks are a MAJOR business in our economy.

11. Other Financial Institutions • Savings & Loans associations • Functions like banks • Mutual Savings banks • Owned by depositors where profits are paid to them • Credit Unions • Serves ONLY its members • Members usually work for one company or a unit of government

12. The Federal Reserve System

14. Need for Gov’t Regulation • Created in 1913 by Congress • Regulates banks activities to avoid widespread financial hardships • Citizens demand that the government regulate because banks closed and customers lost money

15. How the Fed is Organized • Federal Reserve Districts • 12 districts… NC in district 5-- Richmond

16. How the Fed is Organized cont’d • Run by a Board of Governors • 7 members- appointed by President for 14 year terms • Open Market Committee • 7 (B of G) and the presidents of 5 FR Banks • Regulate nation’s $ supply • Federal Advisory Council • 12 bankers (private)– one from each district • Advise B of G and Open Market Council on nation’s business and banking problems

17. Functions of the Fed • Provide Services • Collects and clears checks • Wire $-- Fedwire • Supply currency to banks • Government’s bank • Store tax money paid by citizens • Gov’t checking accounts • Federal gov’t debt records • Bonds (!!) • Supervise banks • Sets minimum amount of funds that must be kept on deposit

18. Functions of the Fed cont’d • Makes loans to banks • Charge banks a special interest rate • Protect individuals and businesses that use banks • Truth in Lending Laws • Control money supply • Controls nation’s money supply by influencing amount of $ people borrow

19. Inflation– rise in price of goods and services • Recession– slowdown in economic activity • controls money supply in order to keep a balance between inflation and recession

20. Banking History Early History: • 1st attempt - 1791 to 1836 • not successful -- States rights issue • Without a national banking system, there were hundreds of different currencies and rapid inflation of prices

21. Banking History cont’d National Banking Act of 1863 • created a dual system of banks - both state and federal banks. • uniform US currency

22. Banking History cont’d Glass-Steagall Banking Act 1933 • Great Depression reaction • Created the FDIC to insure all deposits up to $100,000 … changed in 2008 to $250,000 • Helps prevent “runs” on banks

23. Banking History cont’d Savings and Loan Crisis of the late 1980s • The government relaxed regulations on banks in the late 1970s • Many banks failed due to bad investments. • The United States government stepped in to bail out the S & Ls • It cost the government about $200 billion

24. Banking History cont’d Gramm-Leach-Bliley Act of 1999 • Permits bank holding companies more freedom to engage in a wider series of financial options • Forces banks to put in safeguards to protect your money