Banks & Other Financial Institutions

Ch. 17-1 PoB 2011

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

The Federal Reserve System & Activities

Federal Reserve Districts

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

Federal Reserve Activities

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

Banking and the Economy

Types of Financial 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)

Deposition 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

Non-Deposit Financial Institutions

Services Offered1. Savings accounts2. Checking and payment accounts3. Loans and other credit plans4. 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

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

Selecting a Financial Institution

1. What is the main purpose of the Federal Reserve System?

2. What are some examples of non-deposit financial institutions?

3. What factors should be considered when selecting a financial institution?

Review