Innovations in Modern Banking

1. Innovations in Modern Banking Chapter 10: Section 3

2. What Services do banks provide • 1. customers can store money • 2. customers can earn money • 3. customers can borrow money

3. Customers can store money • Banks safe places to store money/valuables • Safe deposit boxes • 1. Customers deposit money • 2. bank stores currency in vaults • 3. banks insured against theft and other loss • 4. customer accounts insured in case bank fails

4. Customers can earn money • Customers deposit money earn interest on accounts • Other forms of accounts: • Money market • Certificate of Deposits (CDs)

5. Customers can borrow money • Banks allow borrowing of money Fractional Reserve Banking • Banks provides different loans for different circumstances • Mortgage Loan • property = collateral • Credit Card

6. Question • Explain the ways in which bank transactions are beneficial to customers and banks. • Customers: • safe place for money and valuables • Earn interest • Obtain needed loans • Banks: • Can earn money by making loans • Charging interest

7. Fractional Reserve banking

8. Banking Deregulation • Prior to 1980s: government regulated banks • Prevented banks from operating in more than 1 state • Also prevented number of branches for banks • Deregulation in 1980s and 1990s ended these restrictions major changes

9. Bank mergers • Larger banks acquire smaller banks • Bank of America and JP Morgan Chase and Co.  2 largest banks in the US • Assets around $1 trillion each • Benefits of Mergers • Increased competition • Interest rates low • More consumer services • More bank branches (number of banks declined) • Able to better technology

10. Bank mergers • Problems: • Fewer banks to choose from • Larger banks may show less interest in small customers and local community issues • Customers choose a bank that suits them • Large banks need to respond to consumer wants to lose customers

11. Banking services • Financial Services Act 1999 • Lifted restrictions from Banking Act of 1933 limited competition • Change allowed banks to sell stocks, bonds, and insurance • Customers can have all financial needs in one bank “financial supermarket” • People still tend to rely on insurance companies for insurance needs

12. Technology and banking • 1. Automated Teller Machines (ATMs) • 2. Debit Cards • 3. Stored-Value Cards • 4. Electronic Banking

13. Automated Teller machines • Oldest and most familiar developments in electronic banking • ATMs data terminals linked to a central computer which is linked to individual banks’ computers • Magnetic strip on debit card linked to account information • Check balance • Make deposits • Withdraw cash • Transfer money between accounts • Make loan payments

14. Debit Cards • Also called check cards • Look like credit cards • Makes immediate payments • Only allow you to spend the money that you actually have

15. Stored-value cards • Prepaid cards • Examples: • transit fare cards, • gift cards from retail stores, • telephone cards • No need to worry about having exact change each time they ride a bus or use a pay phone

16. Electronic Banking • Can use banking services from home internet provider • Direct deposit • Transfer funds • Pay bills • Print statements • Information security and identity theft • Banks need a lot of personal information to set up electronic banking • Banks need to tell customers about privacy policies and offer customers opportunity to decide what information can be shared with others