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Transcript of Banking
3-1: Role of the Banks
Why do we have banks?
Commercial banks play an important role in the financial system and the economy.
As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner
Importance of Banks:
If there were no banks...
• Where would you go to borrow money?
• What would you do with your savings?
• Would you be able to borrow (save) as much as you need, when you need it, in a form that would be convenient for you?
• What risks might you face as a saver (borrower)?
How Banks Work
Banks borrow from "Savers" which are individuals, businesses, financial institutions, and governments with surplus savings and give small interest as payment.
They then use those deposits and borrowed funds to make loans.
Banks make these loans to sell to "Borrrowers" which are individuals, businesses, other financial institutions, and governments agencies and charge interest.
To Break It Down:
Banks Are Only One Type Of
What is a financial intermediary?
Someone who acts as the “middleman” between those who want to lend and those who want to borrow.
Banks have a large range of liabilities and assets.
- any legal debt or obligation that is owed to someone.
Ex: Savings and checking accounts or time deposits owed to a person or business.
- anything of value that can be turned into money.
Ex: Securities (stocks and bonds), mortgage loans and business loans.
What happens if a bank fails?
Federal Deposit Insurance Corporation
Preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000.
Types of Financial Institutions
What is the most common type of bank called?
Banks are community, regional or national for-profit business corporations owned by private investors and governed by a board of directors chosen by the stockholders.
Their liabilities are in the form of checking and savings deposits, and various types of time deposits.
The assets that commercial banks hold are securities of various forms and things such as mortgage loans, consumer loans, business loans and loans to state and local governments
Commercial banks are among the most regulated forms of business due to their vital role in the well-being of the economy.
Do you think government regulation on private businesses, such as banks, is good or bad? Why?
Savings and Loan
Focuses mainly on savings, mortgages and other kinds of consumer loans, such as car loans and student loans.
By law 70% of their assets have to be in residential mortgages, such as a loan for a home.
A person can deposit money into an S&L but can’t take out a loan for business purposes.
Tend to offer better interest rates then commercial banks.
Savings and Loan
Credit unions are non-profit financial cooperatives owned by their members and governed by a board of directors elected by, and from among, those members.
Credit unions accept deposits from their members and use them to make short-term loans.
Deposits are regarded as purchases of shares, and all earnings of the credit union are paid out as dividends to members.
Non-Bank companies that tend to offer one or a few services that banks tend to not offer.
Usually each company will specialize in an area such as stocks, bonds, commodities, foreign exchange and other risky markets.
Can you name a company in each group named?
Checking and Savings
What is the difference between a checking and savings account?
Is a place to deposit money you don’t plan to spend right away.
You can get cash out of a savings account quickly and without penalty compared to other types of saving accounts.
Have higher interest rates than checking accounts.
A transactional deposit account held at a financial institution that allows for unlimited withdrawals and deposits.
Money can be withdrawn using checks, automated cash machines and electronic debits, among other methods.
Checking accounts tend to have low or no interest rates.
Funds from checking can be withdrawn on demand by a customer without advance notice to bank or credit union.
Bank teller (in person)
ATM (automated teller machine)
2. Payment ID
3. Payment amount
4. Payment amount written
7. Routing Number
8. Account Number
9. Check Number
3-4: Financial Tools and Technology
How can you pay for these purchases without using cash?
soda from a vending machine
a used book from Amazon.com
lunch at school
new shoes from a retail store
cell phone bill
an overdrawn bank account
3-4: Financial Tools and Technology
-a printed order for payment of a specified sum, issued by a bank or post office.
-places like 7-11 also issue money orders.
-A check guaranteed by a bank, drawn on the bank's own funds and signed by a cashier.
-Cashier's checks are treated as guaranteed funds because the bank, rather than the purchaser, is responsible for paying the amount.
- They are commonly required for real estate and brokerage transactions.
A personal check written by the customer and drawn on the customer's account, on which the bank certifies that the signature is genuine and that the customer has sufficient funds in the account to cover the check.
A method of electronic funds transfer from one person or institution (entity) to another.
Banks can do this as well as places like Western Union.
A global e-commerce business allowing payments and money transfers to be made through the Internet from one account to another.
-Acts as an electronic wallet.
Other Ways To Pay