Transcript Banking - comuf.com

Banking
What is Banking
• Banking can be defined as the business
activity of accepting and safeguarding money
owned by other individuals and entities, and
then lending out this money in order to earn a
profit.
• Is the engaging in the business of keeping
money for savings and checking accounts or
for exchange or for issuing loans and credit.
Banking Institutions
• all banks offer services to the community
• some offer more or less services than others
• Banking is one of the key drivers of the U.S.
economy.
• It provides the liquidity needed for families
and businesses to invest for the future.
– The degree to which an asset or security can be
bought or sold in the market without affecting the
asset's price.
Liquidity
– A measure of the extent to which a person or
organization has cash to meet immediate and
short-term obligations, or assets that can be
quickly converted to do this.
Money is the most liquid asset.
– Asset –something of value
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Addison Wesley. All rights
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Figure 15-1 Degrees of Liquidity
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CommercialBanks
• known as a full service bank because of all the services
they offer
• they offer services to businesses and individuals
• they handle :
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time and demand deposits
business and consumer loans
rent safe deposit boxes
offer bill paying and payroll preparation services
collect promissory notes
sell insurance
offer tax and financial advice
some sell stocks, mutual funds, and bonds
Commercial Banks
• commercial banks will charge fees for all these services
– this is how they make their income
• they known as the business bank
• commercial banks are businesses
– some even sell stock in their company on the New York
Stock Exchange
• commercial banks work very closely with the Federal
Reserve Bank
– that is the government bank
• Commercial banks provide the widest variety of
banking services of any financial institutions.
Commercial Banks
• Many people prefer to keep their checking
and savings accounts in the same bank for
ease in transferring funds and making deposits
and withdrawals.
• Most large commercial banks have many
branches, making it easy to find one near your
home or job.
• Commercial banks may be either nationally
chartered or state chartered.
Mutual Savings Banks
• these are banks that offer a variety of banking
services to individuals rather than businesses.
• These types of banking institutions are on the
east coast of the United States
• They are owned by the depositors
– There are some that are owned publicly
• These are also called savings banks
• They handle savings and checking accounts for
the individuals rather than businesses
Savings Bank
• Most of the income that savings banks earn come from
issuing mortgages
– These are long term loans on real estate
– This is only for real estate to individuals
– Loans for commercial property are provided by
commercial banks
• Savings banks also earn income from the services they
offer such as checking and safe deposit boxes
• Savings banks offer higher accounts interest rates
savings accounts than comm.. banks
• Savings banks are usually referred to as mutual savings
banks.
Savings Bank
• These financial institutions are few in number 500 of
them in roughly a dozen states, mostly throughout
New England and the Northeast-but substantial in size.
• Savings banks are state chartered and are insured by
the FDIC.
• Two primary services offered by these institutions are
– savings accounts and
– loans on property, including mortgages and homeimprovement loans.
• Because of deregulation of the banking industry in the
1980s, savings banks also offer checking accounts and
other types of consumer loans.
Savings and Loans
• similar to savings bank except that 90% or
their income comes from issuing mortgages
• S & Ls must be connected with a commercial
bank to get access to national markets
• They specialize in savings accounts and this
money is used to make mortgages
S&L
• Mortgages are the most secure type of loan
• - S&Ls offer many of the services of commercial
banks, including interest-bearing checking
accounts, special savings plans, loans to
businesses, major credit cards, and ATMs.
• In the 1980s, many S&Ls failed as a result of
careless loan practices and poor investments.
Since then, many have merged with other banks.
• All S&Ls today are insured by the FDIC.
Credit Unions
• Credit unions are not-for-profit organizations
established by 'groups of employees in similar
occupations who pool their money.
• To use a credit union, you must be a member of
the employee group.
• Credit unions generally offer higher interest rates
on savings and lower interest rates on loans.
• Their membership in the NCUA (National Credit
Union Administration) provides insurance for
depositors' accounts, up to $100,000.
Credit Unions
• Credit unions are owned by their members.
• A savings account at a credit union is usually called a share
account. Credit union members save their money in form of
"shares,”or part ownership in the credit union.
• From funds accumulated by these shares, the credit union
makes loans to its members.
• Credit unions also offer IRAs (Individual Retirement
Accounts), share draft accounts (checking accounts),
consumer loans, certificates of deposit, and other services.
• Credit unions are growing rapidly in most parts of the
country and consequently are offering more diversified
services.
Brokerage
• Brokerage firms buy and sell different types of securities.
• Securities are stocks and bonds issued by corporations f securities
government.
• Stocks represent equity, or ownership. Bonds represent debt, or a loan.
– In other words, when you buy stock, you become an owner of the company.
– When you buy a bond, you are loaning money to the company or to the
government.
– Investors buy and sell securities through a stockbroker who works for the
brokerage firm.
• Brokerage firms allow you to open accounts and they invest that money in
stocks.
• You may tell the brokerage firm what you want to invest in.
– This is usually the best way
– It is always good to know where your money is going
FDIC
• - called the Federal Deposit Insurance Corporation
• The Federal Deposit Insurance Corporation (FDIC)
preserves and promotes public confidence in the U.S.
financial system by insuring depositors for at least
$250,000 per insured bank; by identifying, monitoring
and addressing risks to the deposit insurance funds;
and by limiting the effect on the economy and the
financial system when a bank or thrift institution fails.
• Almost all commercial banks are insured by the Federal
Deposit Insurance Corporation (FDIC). This insurance
protects depositors from loss due to bank failure, up to
$100,000 per account