Download Banking System Notes

The Banking System
The Federal Reserve System is also
known as
• The Fed
• It is the Central Banking system for the country
• It is a bank for banks—it accepts deposits from banks and also
lends money to banks
• It is made up of 12 Federal Reserve Banks
• The main job of the Fed is to enact policies to keep the
economy of our country strong.
• The president and the senate appoint the Chairman of the Fed
The 12 Fed Banks
• Boston
• New York
• Philadelphia
• Cleveland
• Richmond
• Atlanta
• Chicago
• St. Louis
• Minneapolis
• Kansas City
• Dallas
• San Francisco
Name 4 tools the Fed uses to control the
Money Supply
• Open Market Operations
• Buying and selling government bonds and securities
• This helps control the money supply
• Reserve Requirement
• What percentage of money each bank must keep on hand
• The higher the reserve requirement, the less money banks can lend
• Discount Rate
• The interest rate the Federal Reserve charges for loans
• The higher the interest rate, the less money banks can borrow to lend
• Interest on Reserves
• The higher the interest banks can earn on their reserves, the less
money they will be willing to lend
Why would the Fed want to limit the
amount of money in the economy?
• To keep Inflation down
• Inflation occurs when there is too much money in the
economy.
• AUCTION EXAMPLE
• What happened to prices when more money was given out?
• What happened to prices when the Fed raised the reserve
requirement?
If the Fed Lowers Interest Rates, it is
trying to
• Stimulate the Economy
If the Fed Lowers the Reserve
Requirement, banks can
• Lend More Money
If the Fed Raises Interest Rates, people
are less likely to
• Borrow money/take out loans
If the Economy is heading into a
recession, the Fed will most likely
• Lower Interest Rates
• Lower the Federal Reserve Requirement
Why would the Fed raise Interest
rates?
• To stop inflation
What is a bank?
• A deposit type institution that deals in money and provides
other financial services.
• accept deposits
• make loans
• derive a profit from the difference in the interest rates paid
and charged respectively
What is Meant by “Deposit-Type”
Institutions?
• Accept deposits from businesses and People for future use
• What do they do with the money you deposit?
What are the four basic types of
deposit institutions?
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Commercial Bank
Savings and Loan
Mutal Savings Bank
Credit Unio
Commercial or Full Service
Banks
• A financial institution that provides a wide range of financial
services, such as accepting deposits, giving business loans and
auto loans, mortgage lending, and basic investment products
like savings accounts and certificates of deposit. Privately
owned and are in business to make a profit.
• What would happen to your money if your bank goes out of
business or is robbed?
Who insures Commercial Bank Deposits
and up to what amount?
• The Federal Deposit Insurance Corporation (FDIC) is an independent
agency of the United States government that protects the funds
depositors place in banks. If the bank closes or is robbed, you get
your money back…up to $250,000 per account
• FDIC insurance covers all deposit accounts in MOST commercial
banks, including:
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Checking accounts
Savings accounts
Money market deposit accounts
Certificates of deposit
• FDIC insurance does not cover other financial products and services
that banks may offer, such as stocks, bonds, mutual funds, life
insurance policies, annuities or securities.
• The standard insurance amount is $250,000 per depositor, per
insured bank, for each account ownership category.
Savings and Loans
• A bank that specializes in Home Loans.
• They typically offer lower interest rates on home and car loans
to its members
• They may not offer as many services as Commercial Banks and
may have a limited number of branches and hours to serve its
customers
• Insured by the Savings Association Insurance Fund (SAIF) , a
deposit insurance fund operated by the Federal Deposit
Insurance Corporation
Mutual Savings Banks
• A bank that is owned by the depositors. The profits are
returned to the depositors.
• They may not offer as many services as Commercial Banks and
may have a limited number of branches and hours to serve its
customers
Credit Unions
• a nonprofit-making bank whose members can borrow from pooled
deposits at low interest rates. Profits are returned to its members
• You must apply to become a member of the credit union
• They may not offer as many services as Commercial Banks and may
have a limited number of branches and hours to serve its customers
• Credit unions are NOT insured by the FDIC
• Most credit unions are insured by the National Credit Union
Insurance Fund, or NCUSIF
Which types of bank specialize in Home
Loans?
• Savings and Loans
Which type of Banks are owned by its
members?
• Mutual Savings Bank
• Credit Unions
Services that banks may
provide
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Accepting Deposits
Checking Accounts
Transferring Funds
Lending Money
Storing Valuables
Providing Financial Advice/services
Managing Trusts