Bellringer Before you begin this chapter, see what you already
know about banking by taking the chapter pretest.
www.m.g-wlearning.com Chapter 2, Financial Institutions
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OBJECTIVES Describe the various types of depository
institutions. Discuss types of deposit insurance
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What is a Financial Institution? Businesses that offer
financial services
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Depository Institutions Banks Credit unions Savings
associations Deposit: money placed in an account Depositors:
customers who make deposits Banksresponsible for most of the money
circulating in the country Examples: commercial banks, savings
associations, and credit unions
Transfer Funds Transaction account: allows owner to use it to
pay a third party Example: Checking accounts (most common) Online
bill payment Debit card Access to ATM Used for day-to-day financial
needs Accept Deposits Savings accounts: provide a safe place to
store your money No check writing privileges Banks pay interest on
savings accts. Example: Money market accounts Pays more interest
than average savings acct. Require larger initial deposit and
minimum balance ($500) Commercial Banks Owned by investors
(stockholders)
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Make Loans Make more loans than other depository institutions
Consumers get banks to finance cars, houses, and higher education
Other Services Rental of safe deposit boxes Selling of securities
and insurance Trust departments manage money and other assets
Commercial Banks Owned by investors (stockholders)
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Savings and Loans Associations (S & Ls) aka savings
associations Originally organized to help people save money Operate
for profit Typically owned by stockers, OR Single person, group of
people, or corporation
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Credit Unions Owned by their members (Who are they? Hint:
commercial) Cooperative (co-op): business/organization owned by its
members Not for profitmoney returned to the members Returned money
takes the form of higher interest rates on savings; lower interest
rates on loans Share accounts = savings accounts Share draft
accounts = checking accounts Membership criteria must be met to
join
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Credit Unions Credit Union Membership TypeCharacteristics
Employer-basedOpen to people working in a particular company Ex.:
FedExFedEx Occupation-basedOpen to people who share a common
occupation Ex.: Navy Credit UnionNavy Credit Union
Geography-basedOpen to anyone living, working, or even volunteering
or worshipping in specific geographic location. Ex.: Orion Federal
Credit UnionOrion Federal Credit Union
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FDICyou know what it is, but heres more! FDIC and NCUA
(National Credit Union Administration) are virtually identical
Eligible for FDIC Insurance Protection Not Eligible for FDIC
Insurance Protection Checking accounts Savings accounts Money
market accounts Certificates of deposit IRAs 401(k)s Mutual funds
Stocks Bonds Annuities Life insurance Contents of safe deposit
boxes
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Go to your 1 oclock buddy and discuss the following: 1.What do
financial institutions do? 2.What are the three types of depository
institutions? 3.Who owns commercial banks? 4.What was the original
purpose of savings associations? 5.Why was the FDIC established?
Justify, then agree or disagree as appropriate.
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Closure 3 Things You Found Out 2 Interesting Things 1 Question
You Still Have TURN THIS IN ON YOUR WAY OUT
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Non-Depository Institutions
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Bellringer: Place a dollar sign ($) in the column for which
each characteristic applies. CharacteristicCommercial Banks Savings
Associations Credit Unions For Profit Not-for-Profit Owned by
Stockers or Privately Owned by Members Transfers Funds Accepts
Deposits Makes Loans
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Objectives Define non-depository institutions. Describe the
role of investment banks in raising capital. Explain the purpose of
securities. Describe the function of finance companies. Explain how
insurance companies provide risk- management and investment options
to their clients.
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Non-depository Institutions Do not accept deposits Many make
loans Accept money from customers to invest in business deals
Spreads the risk and provides a way for customers to invest
Institutions Investment banks Securities firms Finance companies
Insurance companies
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Investment Banks Provide services for businesses Help them
raise capital (money) Common way to raise capital is to issue
securities Securities: financial instruments that pay interest or
give investor part ownership of the company One of main activities
of investment banks
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Investment Banks Help organizations issue bonds and find
investors to buy them Highly regulated Bonds: debt issued by govt
or company Buying a bond means loaning money to the organization
(heard of a municipal bond?) Stock: gives the purchaser part
ownership of the company (equity) Stockholders receive dividends
(payments) from issuing company
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Securities Firms (brokerage firms, stockbrokers, bondbrokers)
Involved in trading of securities in financial markets Create and
manage funds Execute transactions for customers Broker places order
and charges a fee (commission) Full-service brokerage firms advise
on which securities to buy Help customers manage their investments
Discount brokers place orders, too Limited services, lower fees
Many are onlineexample: E-Trade, Sharebuilder
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Finance Companies (loan companies) Make profits by issuing
loans to individuals and businesses Most are privately owned
Consumer finance companies provide personal loans to individuals
(with poor credit, higher interest rate) Example: payday lenders
(EXPENSIVErates can be 300% or higher) provide short-term loans
until next payday Business finance companies provide loans for
businesses Example: Value City (WFNNB) Captive finance company
provides loans so the manufacturer can easily sell its own goods
Example: GM (General Motors)
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Insurance Companies For-profit businesses that primarily sell
insurance Insurance protects from loss 2 ways insurance companies
generate revenue: SSelling insurance policies SSelling investment
products Consumer buys policy by making periodic payments
(premiums) Contract = policy Person or thing covered by policy =
insured Also sell annuities, whole life insurance, and mutual funds
Earn income from fees charged to create and manage these
products
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Activity: Station-to-Station Review There are 5 stations, each
with 1 question When the music begins, write your response on the
paper (not too big, others need space), and initial. Should you see
any incorrect answers, use the red pen to correct. When the song
changes, change stations and repeat
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Station 1 What are four types of non-depository financial
institutions?
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Station 2 How do investment banks help companies raise
capital?
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Station 3 How do stockbrokers make their money?
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Station 4 What is the primary business of insurance
companies?
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Station 5 What are the two ways insurance companies earn
income?
Partner with your 2 oclock buddy to create a HEADLINE article
using 5 of your vocabulary words in context. Be creative in
determining what happened in the story you are reporting on. Each
team will present their story to the class. Use Publisher or Word
and print. Checking account DepositDividendEquityMoney market
account PremiumSavings account SecuritiesShare account Share draft
account Activity: Word Splash