Download Financial Service Providers

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 History
Federal 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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U. S. Banking History
Federal Currency
1792 – Mint Act authorized coins:
$10 – gold
50¢ - silver
$5 - gold
25¢ - silver
$2.50 - gold
10¢ - silver
$1 - gold
1¢ - copper
1/2¢ - copper
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U. S. Banking History
Federal Currency
1861 – paper currency first issued by
the U. S. Government
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U. S. Banking History
First 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 History
Second 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 History
National 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
banknotes
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U. S. Banking History
Federal 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 History
Federal 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 History
Federal Reserve System (Fed)Organizational Structure
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U. S. Banking History
Federal 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 History
Federal 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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U. S. Banking History
Federal Reserve System (Fed)- Activities
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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U. S. Banking History
Federal Reserve System (Fed)- Activities
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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U. S. Banking History
Federal Reserve System (Fed)- Activities
To increase the money supply, the Fed
would:
a. lower the discount rate
b. raise the discount rate
c. raise the reserve requirement
d. sell government securities
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U. S. Banking
Other 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 bank
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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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U. S. Banking
Other Regulatory Agencies
Other Federal Government Agencies that
Monitor the Banking Industry
2. (Office of) Comptroller of the Currency (OCC)
a)
b)
c)
d)
Examination of loans and investments of national banks
Review of bank’s internal controls
Evaluation of bank management’s ability to manage risks
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.
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U. S. Banking
Other Regulatory Agencies
Checkpoint
What are the main activities of the Federal
Reserve System?
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U. S. Banking
Other Regulatory Agencies
Understanding Concepts
When creating a national bank, a charter
must be obtained from
a. The Federal Reserve System
b. A state banking regulatory agency
c. The Comptroller of the Currency
d. The Federal Deposit Insurance
Corporation
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U. S. Banking
Financial Institutions in Action –
Banking Departments
Loan Department – reviews loan applications and
approves loans
Personal Banking – savings, checking, borrowing
Commercial Banking – loans, processing cash receipts
(deposits), making payments, transferring funds
International Banking – business around the world
requires foreign exchange service, international money
transfers, letters of credit, export loans
Trust Department - bank manages money,
investments, etc., on behalf of customers
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U. S. Banking
Forms 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.
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U. S. Banking
Forms 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. Banking
Changing Competitive Environment
Non-deposit financial institutions –
financial planning and insurance
Depository companies changes - credit
unions provide mortgages
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U. S. Banking
Changing Competitive Environment
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 banking
debit card
line of credit
credit card
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U. S. Banking
Changing Competitive Environment
Online banking activities
• electronic banking
• virtual branch offices
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U. S. Banking
Comparing Financial Institutions
Balance your needs with your conditions.
When you are dissatisfied, shop around!
Consider:
Services offered
Fees & Charges
Safety
Restrictions
Convenience
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U. S. Banking
Forms of Financial Institutions
Understand Concepts
True or False? A life insurance company is
an example of a non-depository financial
institution.
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U. S. Banking
Forms of Financial Institutions
CHECKPOINT
How do depository and non-depository
financial institutions differ?
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