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Financial Institutions
Banking and Financial Services
“Copyright and Terms of Service
Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions:
Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission from the Texas Education Agency;
2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only without obtaining written permission of the Texas Education Agency;
3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way;
4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged.
Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from the Texas Education Agency and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty fee.
Call TEA Copyrights with any questions you have.
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
Copyright © Texas Education Agency, 2013. All rights reserved. 4
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
Copyright © Texas Education Agency, 2013. All rights reserved. 7
Non-Depository Institutions
Insurance Companies
Trust Companies/Pension Funds
Brokerage Firms & Investment Banks
Loan Companies
Currency Exchanges
Copyright © Texas Education Agency, 2013. All rights reserved. 8
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
Copyright © Texas Education Agency, 2013. All rights reserved. 9
Trust Companies
Manage retirement or estate funds for a fee
Pays interest on investmentsFunds invested for long-term
future growth
Copyright © Texas Education Agency, 2013. All rights reserved. 10
Brokerage Firms
Paid commission to sell stocks and other securities
May offer financial adviceCustomers’ money used to
purchase stocks, bonds, and other securities
Copyright © Texas Education Agency, 2013. All rights reserved. 11
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
Copyright © Texas Education Agency, 2013. All rights reserved. 12
Loan Companies
Private companies, may charge higher interest
May offer payday loansBorrowers are usually higher-risk
Copyright © Texas Education Agency, 2013. All rights reserved. 13
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
Copyright © Texas Education Agency, 2013. All rights reserved. 14
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
Copyright © Texas Education Agency, 2013. All rights reserved. 15
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.
Copyright © Texas Education Agency, 2013. All rights reserved. 16
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
Copyright © Texas Education Agency, 2013. All rights reserved. 17
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
Copyright © Texas Education Agency, 2013. All rights reserved. 18
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).
Copyright © Texas Education Agency, 2013. All rights reserved. 19