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. 1 Copyright © Texas Education Agency, All rights reserved.

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” 2 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking History Federal Currency 1792 – Mint Act authorized coins: $10 – gold 50¢ - silver $5 - gold 25¢ - silver $ gold 10¢ - silver $1 - gold 1¢ - copper 1/2¢ - copper 3 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking History Federal Currency 1861 – paper currency first issued by the U. S. Government 4 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking History First Bank of the U.S privately owned (federal government owned ~20% of the capital) - Charter not renewed in Copyright © Texas Education Agency, All rights reserved.

U. S. Banking History Second Bank of the U.S 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 Copyright © Texas Education Agency, All rights reserved.

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 7 Copyright © Texas Education Agency, All rights reserved.

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. 8 Copyright © Texas Education Agency, All rights reserved.

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. 9 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking History Federal Reserve System (Fed)- Organizational Structure 10 Copyright © Texas Education Agency, All rights reserved.

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 11 Copyright © Texas Education Agency, All rights reserved.

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 12 Copyright © Texas Education Agency, All rights reserved.

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. 13 Copyright © Texas Education Agency, All rights reserved.

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 14 Copyright © Texas Education Agency, All rights reserved.

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 15 Copyright © Texas Education Agency, All rights reserved.

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 16 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking History True or False? The first Bank of the United States later became the Federal Reserve System. 17 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking Other Regulatory Agencies Other Federal Government Agencies that Monitor the Banking Industry 2.(Office of) Comptroller of the Currency (OCC) a)Examination of loans and investments of national banks b)Review of bank’s internal controls c)Evaluation of bank management’s ability to manage risks d)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. 18 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking Other Regulatory Agencies Checkpoint What are the main activities of the Federal Reserve System? 19 Copyright © Texas Education Agency, All rights reserved.

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 20 Copyright © Texas Education Agency, All rights reserved.

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 21 Copyright © Texas Education Agency, All rights reserved.

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. 22 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking Forms of Financial Institutions (2) 2. Non-Depository: Life insurance companies Investment companies Consumer finance companies Mortgage companies Credit card companies 23 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking Changing Competitive Environment Non-deposit financial institutions – financial planning and insurance Depository companies changes - credit unions provide mortgages 24 Copyright © Texas Education Agency, All rights reserved.

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 accountonline banking debit cardline of credit credit card 25 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking Changing Competitive Environment Online banking activities electronic banking virtual branch offices 26 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking Comparing Financial Institutions Balance your needs with your conditions. When you are dissatisfied, shop around! Consider: Services offeredFees & Charges SafetyRestrictions Convenience 27 Copyright © Texas Education Agency, All rights reserved.

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. 28 Copyright © Texas Education Agency, All rights reserved.

U. S. Banking Forms of Financial Institutions CHECKPOINT How do depository and non-depository financial institutions differ? 29 Copyright © Texas Education Agency, All rights reserved.