Classification of Financial Institutions Depository Earns money to finance their business by accepting deposits from customers Types include: ○ Commercial banks, which offer many different services, including savings, loans, and checking accounts. ○ Savings and loan associations (S&Ls), which traditionally specialize in savings and home loans, but now are very similar to commercial banks. ○ Mutual savings banks, which are owned by the depositors and specialize in savings and home loans. ○ Credit unions, which are not-for profit, serve their members only, and are owned by their depositors.
Classification of Financial Institutions continued Non-depository Earns money to finance their business by selling specific services such as policies, investments, and loans Types include: ○ Life insurance companies ○ Investment companies ○ Consumer finance companies ○ Mortgage companies ○ Check-cashing outlets ○ Pawnshops
Classification of Financial Institutions continued Which characteristics of financial institutions are used for comparing them? Services offered Safety Convenience Fees and charges Restrictions What kinds of questions may be asked about each characteristic?
Classification of Financial Institutions continued Services –Does the institution offer savings, checking, loans, credit cards, safe deposit boxes, trusts, etc? Safety – Does the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insure the institution against losses?
Classification of Financial Institutions continued Convenience – Does the institution offer the access you desire? Fees and Charges – What are the short and long-term costs of the services? Restrictions – Are there minimum balances that must be kept, or other restrictions
Common payment services Opening a checking account Signing a signature card is the first step Endorsing a check for deposit An endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else. Different types of endorsements: ○ Blank ○ Full ○ Restrictive
Blank Endorsement Consists of endorser’s name only Anyone who has a check with a blank endorsement may cash it.
Special Endorsement Transfers payment of a check to someone else. Can be used to make payment on a debt Juan Delgado is the payee on this check.
Restrictive Endorsement Limits use of the check so it can be deposited only to endorser’s account. Safest type of endorsement, as it cannot be cashed by a thief or someone who finds the check. Safest endorsement to use when mailing a check for deposit or when using the ATM for deposit.
Check Writing Procedures 1. Ensure all information is written in the check register first, and ensure checks are written in numerical order. 2. Write the date the check is written. 3. Write the payee’s name.
Check Writing Procedures continued 5. Write in the numerical amount of the check. 6. Write in the amount of the check in words. 7. Write in the purpose of the check. 8. Sign the check.
Bank Reconciliation What is a bank reconciliation? A bank reconciliation is the document created to show how the two balances (your own record of your checking account and the bank’s record of your account) were brought into agreement.
What is an outstanding check? check that have not been deducted from the bank statement balance
Steps in a Bank Reconciliation 1. Obtain the monthly bank statement. 2. Determine checks paid. 3. Find differences between the monthly bank statement and monthly check register. 4. Calculate the adjusted balance. 5. If the balances do not agree, check the steps again and recalculate.
The Federal Reserve System What is the Federal Reserve System? (Fed) is a centralized banking system Why does it exist? supervise and regulate member banks and help serve the public efficiently. Who participates? All national banks are required to be members of the Fed; state banks have the option of joining.
The Federal Reserve System How is it organized? The Fed has 12 districts. Located all over the USA.
The Federal Reserve System continued Services provided by the Fed: Supervision of banks Participation of open market activities Acting as a clearinghouse Holding reserves Approving bank mergers Supplying paper currency Managing the discount rate