BANKING BASICS

Banking TodayPresented by Stacy Cox

Objectives

Describe the purpose of a bank Compare and contrast different types

of banks Explain the effect technology has

had on modern banking

What Is A Bank?

A bank is a type of financial institution

A financial institution is any organization that provides services related to money

Services Provided by Banks

Deposits

• Savings accounts

• Checking accounts

• Money Market accounts

• Certificates of deposit

• Retirement accounts

Loans

• Car loans• Home loans• Student

loans• Business

loans• Credit cards

Other Services

• Insurance• Investments• Trust

services• Safe deposit

boxes• Money

transfers

What Is A Bank?

Banks are organizations that handle money but also includes: Protecting money Lending money Issuing money Sending money from one place to

another Keeping track of money Helping customers get more money Helping businesses find money

What Is A Bank?

Banks handle money and most make money…for profit banks are expected to make a profit for their owners (individuals, groups, or stockholders) Lending money at a higher interest rate

than they pay depositors Providing services such as safe deposit

boxes Charging fees of various kinds

What Is A Bank?

Banks are highly regulated by local, state, federal and international agencies

To open a bank you have to have a document called a charter…details how the bank will be operated and regulated Charters are issued by state and federal

governments

What Is A Bank?

What makes a bank a bank? They are depository institutions…

customers give money to it (deposit) and then come back for their money later (withdrawal)

No bank keeps 100% of it’s deposits, but must keep reserves on hand…a percentage of a bank’s funds that must be held separately to ensure that the money will be available when customers want to withdrawal

Banks lend money that customers

deposit

Charge interest to

the borrower

Pay interest to the

depositor

What Is A Bank?

Credit union cooperatives and savings associates are not-for-profit depository institutions Offer similar services as banks but

instead of making a profit for it’s owners, they return the profits to members in the form of lower rates and fees

Types of Banks

Retail banks – provide services for customers Deposit accounts, mortgage, auto, and

personal loans as well as credit cards Internet banks – type of retail bank

that has no physical location or building Customers have access from anywhere

and sometimes these banks pay higher rates on deposits because they do not have the expense of maintaining physical locations

Types of Banks

Commercial bank – focuses on business customers, providing bank accounts and specialized services such as foreign exchange, investment services, and capital loans May have limited personal checking and

savings accounts Money center banks – very large, often

international banks whose primary customers are businesses, other banks, and governments

Types of Banks

After the stock market crash in 1929 regulations stated that banks were prohibited from providing investment services and banks…had to choose one or the other and so Investment banks were created Help companies prepare to become

publicly traded companies After 1999, banks were allowed to

provide both kinds of services

Types of Banks

Governments establish central banks to help stabilize a country’s money system In 1919 the Federal Reserve System was

established A central bank, which is part of the

Federal Reserve System, oversees a country’s banking system

Central banks lend money when commercial banks are not able, regulate banks, and control the money supply

Who Owns the Bank?

In some countries, when owned by the government it is called nationalization

In the US banks are owned by corporations or individuals, but federal and state regulations have an effect on a bank’s operations

Where Do Banks Operate?

May be classified by how large of an area in which they operate Unit banks – bank with one location; found

in small towns or rural areas Regional banks or interstate banks –

banks that branch across a state or a few states in the same region Specialize in retail banking and do not operate

internationally National banks – have offices across the

country Bank of America and Wells Fargo are examples

Technology’s Transformation of Banking

You can now do banking at a machine, from your computer, or even your mobile phone

Automated teller machines (ATMs) – provide a means for self service banking Most banks do not charge a fee for their

customers but they do impose a fee for those who are customers of another bank…another source of income for banks

ATMs can be owned by a bank or private company

Banking Functions Available Through an ATM

Making Cash Withdrawals•Original purpose of the ATM•Amount of withdrawals per day is

limited•Most popular ATM service

Checking Account Balances•View a balance even when the bank

is not open

Making Deposits•Check or cash can be deposited•Checks and currency are scanned

by the ATM•Funds deposited through ATMS may

not be immediately available

Online Banking

Online banking – also known as home banking, allows customers to conduct financial transaction on a secure website Most banks offer some form of online

banking Two types of online banking programs—

transactional and non-transactional

Online Banking

Transactional online banking allows customers to perform common functions Transferring funds Paying bills Applying for loans Purchasing or selling securities Peer-to-peer payments (P2P) – immediate

money transfer from one person to another…all you have to know is their email or cell phone number to send a virtual check PayPal is an example

Online Banking

Non-transactional online banking is the ability to review information rather than make a transaction Viewing checking account balances Viewing recent transactions Downloading bank statements Seeing and printing images of paid

checks

Mobile Banking• Use the camera on a Smartphone to take a picture

of the front and back of a check• Receive deposit confirmation

Mobile Phone Deposit Apps

• Use text messaging to find out the balance• Set up automatic text alertsText Banking

• Pay bills

Bill Payments

• Find the nearest ATM or banking center

ATM Locators

• Make an instant payment to someone

P2P payments

• Make a purchase by waving a Smartphone at a specialty equipped device; the payment is taken directly from the bank account…like a debit cardIn-store payments

BANKING BASICS

Banks and the EconomyPresented by Stacy Cox

Objectives

Describe the economic functions of banks

Explain a bank’s safekeeping function

Explain how credit is essential to a country’s economy

Define the bank’s role as a financial intermediary

Discuss why fast and certain access to funds are keys to a banking system.

Economic Functions of Banks With the help of technology, banks are able to

offer a variety of services: Safekeeping services that protect our money Deposit services that let our money grow Loan services that allow us to borrow money

Allows borrowers, savers, buyers, and sellers to be able to successfully transact their business

Financial transactions are essential to economic growth

Banking expands the economy, provides jobs, income, investment returns, and tax revenues

Keeping Money Safe

Our economy functions efficiently because our banking system give us the confidence that our money is safe

Where do you keep your money? Wallet, backpack, or bedroom…but the bulk is probably kept in a bank because we want that security

Banks provide physical security and federal deposit insurance protects our money in the event of a bank failure

Keeping Money Safe

We rely on banks to keep accurate records of our accounts…trail of business transactions

Most of our transactions occur not with actual currency but through checks, ATMs, and debit cards (also known as a check card, allows bank customers to withdraw cash to pay for goods and services in stores or online)

Keeping Money Safe

Banks are physically safe… Surveillance equipment and security systems Nearly indestructible vaults with alarm

systems and antitheft devices Teller windows have bulletproof glass and

other safety features Protection against internal theft as well…

Tellers and other employees must go through background checks

Daily checks on cash drawers and vaults, as well as audits and internal controls

Keeping Money Safe

If a robbery does occur… Banks are protected by insurance they

purchase called banker’s blanket bond (protects against robberies or employee theft)

In the case of bank failure… The Federal Deposit Insurance

Corporation (FDIC) insures each depositor up to $250,000

Extending Credit

Banks are the major lenders in our economy Car or house loan Businesses borrow to purchase materials

or equipment or expand their markets Interest from loans is the main source of

revenue for most banks Without banks extending credit,

borrowers suffer, as well as the economy

Loan CycleBank uses deposits to make a car

loan to customer

Customer uses loan to buy car from

car dealer

Car dealer pays car salesman

after sale of car

Car salesman buys new TV

with the money

received

TV store deposits

money into bank account

Financial Intermediary

A major function of a bank is to act as a financial intermediary…an institution that acts as a go-between in financial transactions

Financial intermediary facilitates transactions between the savers and borrows Example: savers need a place to put their

savings…banks can meet that need while borrowers need someone to lend them money. Banks use money from the savers to loan to the borrowers. Banks accept the risk of the loan not being repaid

Transferring Funds

Our economy is fast-paced…without the transfer and payment systems provided by banks, our economy would slow down to a crawl

Electronic funds transfer (EFT) is the electronic exchange of money from one account to another through computer-based systems…debit cards and ATMs

Transferring Funds

Automated clearinghouses (ACHs) are electronic networks for financial transactions ACHs process credit and debit

transactions and transfer funds from bank to bank.

There are several ACHs in the US, with the Federal Reserve Bank being the largest, handling about 60% of the ACH transactions