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