Chapter 13 Banking
Types of Financial Institutions
There are many different types of financial institutions in Canada. The main “deposit-taking” types are:• Chartered Banks• Trust Companies• Caisses Populaires• Credit Unions
The Need for Financial Institutions • Financial Institutions provide many different services
and earn profits by: 1. Selling products and services (accounts, financial advice,
cheques)2. Charging interest on money loaned (mortgages, lines of credit,
personal and business loans)3. Earning interest on their investments (RRSPs, Mutual Funds)
• Bank Act: • Outlines rules and regulations that banks have to follow• Gives banks authority to operate • Outlines procedures for opening new banks, forming mergers• Government will revise the act from time to time
Schedule I, II and III3 classes of banks: class determined by who owns it
• Schedule I• Owned by Canadian shareholders
• “Big 5” (BMO, RBC, BNS, TD, CIBC) Table 13.2
• Schedule II• Foreign owned
• Owned by a small number of private shareholders
• Same powers as Schedule 1 banks
• Government limits # of branches
• AMEX, ING, HSBC, State Bank of India
• Focus on investment banking, business accounts
• Schedule III • Foreign bank branches
• Same as schedule II but more restrictions
• Capital One, Citibank
• Benefits to Branch Banking • Same service everywhere • Small communities linked to financial center • Every branch is fully supported with expertise • We can go to any branch with our PIN and card • Branches help to balance poor economy with good
economy
• How is Branch Banking Changing?• ABM, online, telephone encouraged • In some areas, retailers are doing banking jobs (ex. PC
Financial, cash back feature)• Credit unions are replacing banks in rural areas
The Bank of Canada
• Function :• Control money supply to regulate the economy • They do this by changing the BANK RATE also called the
PRIME RATE• This causes banks to change their interest rates (this is
the minimum they will charge for loans)
• Consequence of rising and falling interest rates?• Low interest rate = higher spending, high borrowing • Higher interest rate = higher savings, less spending
Bank of Canada Video
• http://www.bankofcanada.ca/en/video_corp/videos.html
• Now fill in the rest of your handout using the textbook.
Other Financial Institutions
Trust Companies
• Like banks, but more like a financial services company
• Assist customers with purchasing real estate
• Look after the estates of the deceased
• Maintain accounts for charitable organizations
• Not under the Bank Act
Credit Unions
• Organized and owned by a group of people who agree to pool their resources
• Offer services like a bank
• Only provide services to members and their families
• Each member has an equal vote when making decisions
Other Financial Institutions
Insurance Companies
• Companies that insure risk
• Life, health, property and car are often the focus
• Age will influence insurance needs
• Businesses need insurance too: • Fire, liability, auto, misconduct, malpractice, product
liability
• Payments from many to pay out claims for a few