Chapter 25Chapter 25

Financial Institutions and Banking Services

Banks as a BusinessBanks as a Business

Banks offer services to its customers– Checking Accounts– Savings Accounts– Loans

Bank charters– Federal charter = National Bank– State charter = State Bank

Two Types of BanksTwo Types of Banks

Deposit-Type Institutions– Accept deposits for people and businesses to

use in the future.Nondeposit Institutions

– Do not accept deposits.

FDIC – Federal Deposit Insurance Corp.– Federal Agency that helps to regulate banks and

other financial institutions.

FDICFDIC

Protects depositor’s money in case the bank or financial institution fails, as long as it is regulated by the FDIC– Insures all accounts under the same name at

each bank up to an amount of $100,000– Government Agency, but receives it’s money

from the banks.– Almost 99 percent of the banks are members of

the FDIC

Deposit-Type BanksDeposit-Type BanksCommercial Banks –

– Full-Service Banks– Offer checking accounts, provide savings

accounts, make loans to individuals and businesses, and other services

– In larger banks, these services may be broken into different departments.

Savings department Trust department Real Estate department Investment department

Deposit Type BanksDeposit Type BanksSavings and Loan Association –

– Normally, specialize in savings accounts and making loans for home mortgages

– Presently, they are leaning more toward offering a greater variety of services, so now they are becoming savings banks.

Mutual Savings Bank– Provides a variety of services

Savings accounts and to make loans to homebuyers

– Owned by its depositors The profits of a Mutual Savings Bank go to the depositor

Deposit-Type BanksDeposit-Type Banks Credit Unions

– User-Owned, Not-For-Profit, Cooperative Institution– Normally its members have something in common with

one another.– Services offered

Savings deposits Loans for a variety of purposes Special Checking accounts Credit Cards Mortgages Home Equity loans Safe-Deposit Boxes Investment services Electronic banking services Loans to small firms

Nondeposit Financial Nondeposit Financial InstitutionsInstitutions

Life Insurance Companies – provide financial security for dependants– Through careful investing in new and existing

companies, life insurance companies can help to expand business in our economy.

Investment Companies– Allow people to choose investment

opportunities for long-term growth of their money.

Nondeposit Financial Nondeposit Financial InstitutionsInstitutions

Consumer Finance Companies– Specializes in making loans for long-lasting or

durable goods, such as cars and refrigerators, and for financial emergencies.

Mortgage Companies– Provide loans for purchasing a new home or

other real estate

Nondeposit Financial Nondeposit Financial InstitutionsInstitutions

Check-Cashing Outlets

– May cash paychecks or obtain other financial services.

– CCOs offer a wide variety of services such as electronic tax filing, money orders, private postal boxes, utility bill payment, and the sale of bus and subway tokens.

Types of Financial ServicesTypes of Financial Services

Accepting DepositsTransferring FundsLending MoneyStoring ValuablesProviding financial advice and investment

servicesManaging trusts

Accepting DepositsAccepting Deposits

Safe storage of funds for future use is an almost universal need.

One of the main services offered by financial institutions

Interest – – The amount that the bank pays its customers to

use their money.

Transferring FundsTransferring Funds

Money can easily be transferred from one account to another through simply writing a check

Electronic Funds Transfer– A system through which funds are moved

electronically from one account to another and from one bank to another

Other EFT ServicesOther EFT Services

Point – of – Sale Transaction– Debit Card – use at stores, gas stations, and or

restaurants to pay for purchases.– Direct Deposit – your paycheck is

automatically deposited in your checking or savings account.

– Home Banking – payments are made and loans are obtained by customers using telephones and computers.

Lending MoneyLending Money Many people, businesses, and governments

borrow money at some time.– Individuals

pay for car or to pay for college tuition

– Business Borrow money to build a new warehouse or to buy more

merchandise for resale

Banks want to make loans like this….– Majority of their revenue is from the interest they

charge borrowers. Banks also issue Credit Cards (Visa and MasterCard)

Storing ValuablesStoring Valuables

Safe-Deposit Boxes– In the bank, an area where you can pay to store

your valuables. Jewelry Bond and stock certificates Birth records List of insurance policies will

Providing Financial Advice Providing Financial Advice and Investment Servicesand Investment Services

Many banks can advise customers about such things as whether it is wise to buy a certain house, how to manage money better, or how to exchange U.S. currency for foreign currency.

InvestmentsInvestments

Are savings that are put to work to earn more money.– Money in a savings account is a type of

investment because the savings account earns interest.

– Bonds are another form of investment which customers can make from either the federal or state government, businesses, or school districts.

Managing TrustsManaging Trusts

Trust Companies– Businesses that manage people’s money and property for

them. Normally used by young people and by elders.

– Young people who inherit money may not have the skill and experience to invest wisely.

– Elder people who are ill may ask the trust department of a bank to manage their money.

The bank or company then invests the money and keeps the customer informed with what is going on with their money.

The Federal Reserve SystemThe Federal Reserve System

Federal Reserve Bank – is a bank where individuals cannot make deposits or open an account at. Only other banks can do that. This is a bank for banks, its relationship to other banks is similar to that or your bank to you.

Federal Reserve System – supervise and regulate member banks in order to help the banks serve the public efficiently.

Financial Institutions and Financial Institutions and Economic GrowthEconomic Growth

Bank Services are commonly used to:– Build homes– Start new businesses– Plant crops– Finance educations– Buy goods– Pave streets– Build hospitals– Buy new business equipment

“Banking services are made possible through the savings you and others deposit. Deposits into banks to not sit idle in bank vaults. They are put to work. When you and others deposit money into a bank, you are create jobs and economic growth that benefit your community and society.”