Banks & Other Financial Institutions

1. Banks & Other Financial Institutions Ch. 17-1 PoB 2011

2. The Federal Reserve System & Activities • Federal Reserve System (FED) – set up by federal government to supervise and regulate member banks and to help banks serve the public efficiently • An individual cannot open an account in a Federal Reserve Bank because it is the bank for banks • All national banks are required to join the Fed • State banks can join too • Member Banks – banks that join the system • United States is divided into 12 Federal Reserve districts; with a central bank in each

3. Federal Reserve Districts

4. Federal Reserve Activities • Reserves –the amount of money deposited by customers that banks are required to keep that are held by the Fed • Result = banks will lend only a certain percentage of deposited funds • Clearing – refers to the process of paying checks and other payments among different banks

5. Banking and the Economy • How we use banking service: • Borrow money to build roads • Borrow money to buy seeds for crops • Deposit cash from business operations • Finance a college education • Invest for retirement • Obtain a mortgage • Save for a vacation

6. Types of Financial Institutions

7. Deposition Institutions • Deposit Institutions (depository intermediaries) – accept deposits from people and business and use them to finance their business • Commercial Banks(full-service banks) – offer a wide range of financial services • Offer checking accounts, provide savings accounts, and make loans • Savings and Loan Associations – specializes in savings accounts and making loans for home mortgages • Mutual Savings Bank – is a savings bank that is owned by, and operated for the benefit of the depositors • Credit Unions – a user-owned, not-for-profit, cooperative financial institution • Regulated by the National Credit Union Administration (NCUA)

8. Non-Deposit Financial Institutions • Non-Deposit Institutions (non-depository intermediaries) – they do not take or hold deposits • Life Insurance Companies – offers life insurance and investments • Investment Companies – offer investment opportunities for long-term growth of their money • Consumer Finance Companies – specializes in making loans for long-lasting or durable goods • Mortgage Companies – provide loans for buying a home or other real estate • Check-Cashing Outlets – besides check cashing offer a wide range of services such as electronic tax filing, money orders, postal boxes, and utility payments • Pawnshops – make loans based on the value of some tangible object • Charge higher fees and should be avoided

9. Selecting a Financial Institution • Services Offered • Savings accounts • Checking and payment accounts • Loans and other credit plans • Other services, such as safe-deposit boxes and investment advice • Safety • Federal Deposit Insurance Corporation (FDIC) – the federal agency that helps to regulate banks and other financial institutions • Insures all accounts in the same name at each bank up to an amount of $250,000 • 99% of all banks are FDIC insured

10. Selecting a Financial Institution • Convenience • More convenience may mean higher costs for banks, but online banking has resulted in lower costs for customers • Fees and Charges • ATM fees • Checking and usage fees • Overdraft fees • Can add up to hundreds in a short amount of time • Restrictions • Losing out on interest in a checking account • Locked in deposits • Balance limits

11. Review What is the main purpose of the Federal Reserve System? What are some examples of non-deposit financial institutions? What factors should be considered when selecting a financial institution?