Financial Institutions Banking and Financial Services.

Financial Institutions

Banking and Financial Services

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Copyright © Texas Education Agency, 2013. All rights reserved. 2

Two Main Types

DepositoryObtain funds, or deposits, from

customers, and use those funds to conduct business

3-10% held on reserve, remainder can be loaned to customers

Non-depositoryThey do not hold depositsSell services and charge fees for

these servicesCopyright © Texas Education Agency, 2013. All rights reserved. 3

Types of Depository Institutions

Commercial Bank

Savings and Loans/Mutual Savings Banks

Credit Unions


Commercial Bank

Usually owned by stockholdersWork with businesses and

individualsFor-profit institutionOffer services such as:

Checking and savings accountsLoansInvestmentsInsurance Safe-deposit boxesCopyright © Texas Education Agency, 2013. All rights reserved. 5

Savings and Loans

Usually privately-owned, by depositors

Receive most deposits from individuals

Usually have FSB in the nameMain business is real estateMany services same as

commercial banksMutual Savings Banks are very

similar, but state-charteredCopyright © Texas Education Agency, 2013. All rights reserved. 6

Credit Union

Users must be membersNon-profit, so any profit must be

distributed to members as possibly lower rates or fees

Many services similar to commercial banks


Non-Depository Institutions

Insurance Companies

Trust Companies/Pension Funds

Brokerage Firms & Investment Banks

Loan Companies

Currency Exchanges


Insurance Companies

Sell financial protection in the event of a loss

Premiums not considered as deposits

Health, lifeSome policies have cash value,

but still not considered as deposits


Trust Companies

Manage retirement or estate funds for a fee

Pays interest on investmentsFunds invested for long-term

future growth


Brokerage Firms

Paid commission to sell stocks and other securities

May offer financial adviceCustomers’ money used to

purchase stocks, bonds, and other securities


Investment Banks

Usually has large investors for clients

Money invested in other businesses

Profit comes from fees and interest earned on investments

Wealth management is more of a total portfolio of wealth; investing is more about individual investment products


Loan Companies

Private companies, may charge higher interest

May offer payday loansBorrowers are usually higher-risk


Currency Exchanges

Cash checks or sell money orders for a fee

Usually in areas that may lack other financial services

Fees may be higher due to lack of other services in the area


Regulators

Board of Governors of the Federal Reserve oversees state-chartered banks and trust

companies that are members of the Federal Reserve

FDIC (Federal Deposit Insurance Corporation) state- or nationally-chartered banks and savings

institutions that are not members of the Federal Reserve

state-chartered thrift institutions (former S & Ls) Office of the Comptroller of the Currency

banks with “National” or “N.A.” Federal Savings Banks and any remaining

Federal Savings and Loans, also called thrift institutions

National Credit Union Administration (NCUA) federally-chartered credit unions


Deregulation

During the time of the Great Depression there were fewer services offered to customers, little competition, and not enough money for banks to lend.

In the 1980s customers were looking at other financial institutions aside from banks because they could earn higher interest rates.

Restrictions were loosened for the banks, known as deregulation, to increase the competition for banking services which then increased the number of customers and deposits.

This deregulation also led to risky investing by Savings and Loans and was one of the many causes of the S & L crisis and the bankruptcy of the FSLIC (Federal Savings and Loan Insurance Corporation), the Savings and Loan version of the FDIC.


Savings and Loans in Crisis

1980s deregulation-led to risky investing in real estate and loans by Savings and Loans

In addition, 1980s recession led to failure and fraud of many S & Ls.

Failed S & Ls: Silverado Savings & Loan Vernon Savings & Loan Lincoln Savings & Loan Midwest Federal Savings & Loan


Banking Crisis of 2008

A major cause-losses due to ‘subprime’ mortgages subprime-higher rates typically due to

semi-risky borrowers loans not repaid-led to foreclosures

Affected banks in foreign countries due to similar mortgage lending practices

Led to bailouts of major banks due to massive losses


Independent Practice Assignments

Savings and Loan Fraud Cases Assignment #1 – Students are to conduct research on the S & L crisis of the 1980s and create a table listing three Savings and Loans, the primary reasons for the failure of the S & L, and what measures have been taken to prevent a repeat of these types of cases. Start with the www.fdic.gov/bank/historical/S&L/ but your research may lead to other web sites.

Act Comparison T-Chart and Summary Assignment #2 – Students will conduct research on the Gramm-Leach-Bliley Act of 1999 as well as additional research on the Glass-Steagall Act of 1933. They will compare and contrast the different provisions of each act and create a T-chart displaying the results of their findings. Identify the similarities with one color and the differences with another color.

Financial Institution Gameboard Assignment #3 – In pairs, students are to create a gameboard using either posterboard, flipchart paper, an open file folder, or a word-processing template on the computer. If students use the computer they can use the mailing templates (such as Avery) and select the business card template. The topic will be Financial Institutions Fun Facts. Game blanks will consist of facts pertaining to the various types of financial institutions and their characteristics. There should be a mixture of types of blanks, for example, some will contain questions, some will actually be blank, some will have consequences for incorrect answers (such as skip a turn, back two spaces, … ) and some will have reward spaces (such as move ahead one space if you answer correctly, or take another turn).


http://www.fdic.gov/bank/historical/S&L/

Financial Institutions Banking and Financial Services.

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