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Banking Today Presented by Stacy Cox. Banking Basics. Objectives. D escribe the purpose of a bank Compare and contrast different types of banks Explain the effect technology has had on modern banking. What Is A Bank?. A bank is a type of financial institution
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Banking Today Presented by Stacy Cox Banking Basics
Objectives • Describe the purpose of a bank • Compare and contrast different types of banks • Explain the effect technology has had on modern banking
What Is A Bank? • A bank is a type of financial institution • A financial institution is any organization that provides services related to money
What Is A Bank? • Banks are organizations that handle money but also includes: • Protecting money • Lending money • Issuing money • Sending money from one place to another • Keeping track of money • Helping customers get more money • Helping businesses find money
What Is A Bank? • Banks handle money and most make money…for profit banks are expected to make a profit for their owners (individuals, groups, or stockholders) • Lending money at a higher interest rate than they pay depositors • Providing services such as safe deposit boxes • Charging fees of various kinds
What Is A Bank? • Banks are highly regulated by local, state, federal and international agencies • To open a bank you have to have a document called a charter…details how the bank will be operated and regulated • Charters are issued by state and federal governments
What Is A Bank? • What makes a bank a bank? • They are depository institutions…customers give money to it (deposit) and then come back for their money later (withdrawal) • No bank keeps 100% of it’s deposits, but must keep reserves on hand…a percentage of a bank’s funds that must be held separately to ensure that the money will be available when customers want to withdrawal
What Is A Bank? • Credit union cooperatives and savings associates are not-for-profit depository institutions • Offer similar services as banks but instead of making a profit for it’s owners, they return the profits to members in the form of lower rates and fees
Types of Banks • Retail banks – provide services for customers • Deposit accounts, mortgage, auto, and personal loans as well as credit cards • Internet banks – type of retail bank that has no physical location or building • Customers have access from anywhere and sometimes these banks pay higher rates on deposits because they do not have the expense of maintaining physical locations
Types of Banks • Commercial bank – focuses on business customers, providing bank accounts and specialized services such as foreign exchange, investment services, and capital loans • May have limited personal checking and savings accounts • Money center banks – very large, often international banks whose primary customers are businesses, other banks, and governments
Types of Banks • After the stock market crash in 1929 regulations stated that banks were prohibited from providing investment services and banks…had to choose one or the other and so Investment banks were created • Help companies prepare to become publicly traded companies • After 1999, banks were allowed to provide both kinds of services
Types of Banks • Governments establish central banks to help stabilize a country’s money system • In 1919 the Federal Reserve System was established • A central bank, which is part of the Federal Reserve System, oversees a country’s banking system • Central banks lend money when commercial banks are not able, regulate banks, and control the money supply
Who Owns the Bank? • In some countries, when owned by the government it is called nationalization • In the US banks are owned by corporations or individuals, but federal and state regulations have an effect on a bank’s operations
Where Do Banks Operate? • May be classified by how large of an area in which they operate • Unit banks – bank with one location; found in small towns or rural areas • Regional banks or interstate banks– banks that branch across a state or a few states in the same region • Specialize in retail banking and do not operate internationally • National banks – have offices across the country • Bank of America and Wells Fargo are examples
Technology’s Transformation of Banking • You can now do banking at a machine, from your computer, or even your mobile phone • Automated teller machines (ATMs) – provide a means for self service banking • Most banks do not charge a fee for their customers but they do impose a fee for those who are customers of another bank…another source of income for banks • ATMs can be owned by a bank or private company
Online Banking • Online banking – also known as home banking, allows customers to conduct financial transaction on a secure website • Most banks offer some form of online banking • Two types of online banking programs—transactional and non-transactional
Online Banking • Transactional online banking allows customers to perform common functions • Transferring funds • Paying bills • Applying for loans • Purchasing or selling securities • Peer-to-peer payments (P2P) – immediate money transfer from one person to another…all you have to know is their email or cell phone number to send a virtual check • PayPal is an example
Online Banking • Non-transactional online banking is the ability to review information rather than make a transaction • Viewing checking account balances • Viewing recent transactions • Downloading bank statements • Seeing and printing images of paid checks
Banks and the EconomyPresented by Stacy Cox Banking basics
Objectives • Describe the economic functions of banks • Explain a bank’s safekeeping function • Explain how credit is essential to a country’s economy • Define the bank’s role as a financial intermediary • Discuss why fast and certain access to funds are keys to a banking system.
Economic Functions of Banks • With the help of technology, banks are able to offer a variety of services: • Safekeeping services that protect our money • Deposit services that let our money grow • Loan services that allow us to borrow money • Allows borrowers, savers, buyers, and sellers to be able to successfully transact their business • Financial transactions are essential to economic growth • Banking expands the economy, provides jobs, income, investment returns, and tax revenues
Keeping Money Safe • Our economy functions efficiently because our banking system give us the confidence that our money is safe • Where do you keep your money? Wallet, backpack, or bedroom…but the bulk is probably kept in a bank because we want that security • Banks provide physical security and federal deposit insurance protects our money in the event of a bank failure
Keeping Money Safe • We rely on banks to keep accurate records of our accounts…trail of business transactions • Most of our transactions occur not with actual currency but through checks, ATMs, and debit cards (also known as a check card, allows bank customers to withdraw cash to pay for goods and services in stores or online)
Keeping Money Safe • Banks are physically safe… • Surveillance equipment and security systems • Nearly indestructible vaults with alarm systems and antitheft devices • Teller windows have bulletproof glass and other safety features • Protection against internal theft as well… • Tellers and other employees must go through background checks • Daily checks on cash drawers and vaults, as well as audits and internal controls
Keeping Money Safe • If a robbery does occur… • Banks are protected by insurance they purchase called banker’s blanket bond (protects against robberies or employee theft) • In the case of bank failure… • The Federal Deposit Insurance Corporation (FDIC) insures each depositor up to $250,000
Extending Credit • Banks are the major lenders in our economy • Car or house loan • Businesses borrow to purchase materials or equipment or expand their markets • Interest from loans is the main source of revenue for most banks • Without banks extending credit, borrowers suffer, as well as the economy
Financial Intermediary • A major function of a bank is to act as a financial intermediary…an institution that acts as a go-between in financial transactions • Financial intermediary facilitates transactions between the savers and borrows • Example: savers need a place to put their savings…banks can meet that need while borrowers need someone to lend them money. Banks use money from the savers to loan to the borrowers. Banks accept the risk of the loan not being repaid
Transferring Funds • Our economy is fast-paced…without the transfer and payment systems provided by banks, our economy would slow down to a crawl • Electronic funds transfer (EFT) is the electronic exchange of money from one account to another through computer-based systems…debit cards and ATMs
Transferring Funds • Automated clearinghouses (ACHs) are electronic networks for financial transactions • ACHs process credit and debit transactions and transfer funds from bank to bank. • There are several ACHs in the US, with the Federal Reserve Bank being the largest, handling about 60% of the ACH transactions