FINANCIAL SERVICE PROVIDERS Bank : A business that sells services such as savings accounts, loans,...

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FINANCIAL SERVICE PROVIDERS

Bank:

• A business that sells services such as savings accounts, loans, and investments

• Regulated more strictly than most other businesses

• If one fails, thousands of people are affected.

Copyright © Texas Education Agency, 2012. All rights reserved.

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U. S. Banking HistoryFederal Currency

Federal Currency: Several types circulated during Colonial times and just after the American Revolution.• British - pound and shilling• Spanish coin – “real”


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1792 – Mint Act authorized coins: $10 – gold 50¢ - silver$5 - gold 25¢ - silver $2.50 - gold 10¢ - silver $1 - gold 1¢ - copper

1/2¢ - copperCopyright © Texas Education Agency, 2012. All rights reserved.

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1861 – paper currency first issued by the U. S. Government


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U. S. Banking HistoryFirst Bank of the U.S. - 1791

- privately owned (federal government owned ~20% of the capital)

- Charter not renewed in 1811


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U. S. Banking HistorySecond Bank of the U.S - 1816

• Regulated credit and the money supply better than the First

• State Banks viewed the actions of the Federal Bank as a threat

• Charter not renewed in 1836


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U. S. Banking HistoryNational Banking Act of 1864

• created the office of the Comptroller of the Currency – to charter national banks

• National banknotes were issued• High tax imposed on state

banknotesCopyright © Texas Education Agency, 2012. All rights reserved.

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U. S. Banking HistoryFederal Reserve System (Fed)

• Federal Reserve Bank – a “bank for banks”

• created to supervise and regulate member banks

• All national banks are required to join the Federal Reserve System.


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U. S. Banking HistoryFederal Reserve System (Fed)- Organizational Structure

• member banks – banks that join the Federal Reserve System

• U. S. is divided into 12 Federal Reserve districts• district reserve banks - Central Federal

Reserve Bank in each of the 12 districts• Board of Governors of the Fed has seven members,

appointed by the president and serve 14-year terms.


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U. S. Banking HistoryFederal Reserve System (Fed)- Organizational Structure


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U. S. Banking HistoryFederal Reserve System (Fed)- Organizational Structure (continued)

district reserve banks – • Handle banking activities for

government agencies• Implement Fed policies• Governed by a nine-member board of

directors


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U. S. Banking HistoryFederal Reserve System (Fed)- Activities

Holding of reserves • reserve requirement – the percentage of funds

that a bank is required to hold from customer deposits

• cannot be used for loans• held in case additional funds are needed to

meet daily customer demands


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Clearing checks:• clearing – paying checks among different banks

in different cities• Fed processed millions of checks daily to make

sure that the correct amounts are added to and subtracted from the appropriate bank accounts.


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Fed influences money supply in three ways:1. Setting Reserve Requirements – as the Fed adjusts the portion

of deposits that banks must hold, the amount that may be lent out will increase or decrease.

2. Changing the Discount Rate – An increase in this rate will usually increase the cost for mortgages and other loans

3. Buying and Selling Government Securities – “open market operations” – The sale of government bonds to banks results in fewer funds available for lending which reduces the money supply


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To increase the money supply, the Fed would:

a. lower the discount rateb. raise the discount ratec. raise the reserve requirementd. sell government securities


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U. S. BankingOther Regulatory Agencies

Government Agencies that Monitor the Banking Industry

1. Federal Deposit Insurance Corporation (FDIC)•Provides government guarantee of deposits • Maintains stability and public confidence in

the nation’s banks• Insures deposits up to $100,000 per

depositor, per bankCopyright © Texas Education Agency, 2012. All rights reserved.

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U. S. Banking History

True or False? The first Bank of the United States later became the Federal Reserve System.


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Other Federal Government Agencies that Monitor the Banking Industry

2. (Office of) Comptroller of the Currency (OCC)a) Examination of loans and investments of national banksb) Review of bank’s internal controlsc) Evaluation of bank management’s ability to manage risksd) Approval or denial of application for new bank charters,

branches, capital or other changes in corporate or banking structure

e) Rules governing bank investments, lending, etc.Copyright © Texas Education Agency, 2012. All rights reserved.

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Checkpoint

What are the main activities of the Federal Reserve System?


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Understanding ConceptsWhen creating a national bank, a charter must be obtained from

a. The Federal Reserve Systemb. A state banking regulatory agencyc. The Comptroller of the Currencyd. The Federal Deposit Insurance

CorporationCopyright © Texas Education Agency, 2012. All rights reserved.

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U. S. BankingFinancial Institutions in Action –

Banking Departments

Loan Department – reviews loan applications and approves loans Personal Banking – savings, checking, borrowingCommercial Banking – loans, processing cash receipts (deposits), making payments, transferring fundsInternational Banking – business around the world requires foreign exchange service, international money transfers, letters of credit, export loansTrust Department - bank manages money, investments, etc., on behalf of customers


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U. S. BankingForms of Financial Institutions (2)

1. Depository – main functions are to store money and make loans• Offer the widest range of services• Savings & Loan – specialize in savings

accounts and home mortgages• Mutual savings banks - specialize in savings

accounts and home mortgages• Credit unions - offer services to meet the

needs of their owner-customers. Copyright © Texas Education Agency, 2012. All rights reserved.

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U. S. BankingForms of Financial Institutions (2)

2. Non-Depository:• Life insurance companies • Investment companies• Consumer finance companies• Mortgage companies • Credit card companies


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U. S. BankingChanging Competitive Environment

Non-deposit financial institutions – financial planning and insurance

Depository companies changes - credit unions provide mortgages


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all-in-one account, also called an asset management account or a cash management account – for a single fee, investment brokers provide:

checking account online bankingdebit card line of creditcredit card


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Online banking activities• electronic banking• virtual branch offices


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U. S. BankingComparing Financial Institutions

Balance your needs with your conditions. When you are dissatisfied, shop around! Consider:Services offered Fees & ChargesSafety RestrictionsConvenience


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U. S. BankingForms of Financial Institutions

Understand ConceptsTrue or False? A life insurance company is an example of a non-depository financial institution.


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U. S. BankingForms of Financial Institutions

CHECKPOINTHow do depository and non-depository

financial institutions differ?


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FINANCIAL SERVICE PROVIDERS Bank : A business that sells services such as savings accounts, loans,...

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