Banking Basics

BELLRINGER—TWO PARTS Take Pretest via www.m.g-wlearning.com. (5 min.) Complete a word study on BANK. (10 min.)

Objectives Describe the purpose of a bank. Compare and contrast different types of banks, Explain the effect technology has had on modern banking.

make a list of things that you think banks do. In groups of 2 or 3 . . . make a list of things that you think banks do.

What is a Bank? A type of financial institution that provides services related to money. Deposits, loans, and other services Handle money and make money, Lend money at a higher interest rate than they pay depositors; Provide safe-deposit boxes; Charge fees of various kinds Highly regulated Bank’s charter details how to be operated and regulated Banks are depository institutions—customers can give make a deposit or make a withdrawal Doesn’t keep 100% of deposits available—keeps reserves on hand. (held to ensure money is available to customers

What does a bank do? Retail banks: provide services for consumers i.e. deposit accounts, mortgage, auto, credit cards, and personal loans Internet banks: no physical location or building, no in-person service Commercial banks: focuses on business customers for foreign exchange, investment services, capital loans, limited consumer-oriented services i.e. personal checking and savings accounts Money Center banks: very large, often international, primary customers are businesses, other banks, and governments . Hit hard by global financial crisis in 2007 Investment banks: helped companies prepare to become publicly traded companies to make profit from stock market. Central banks: lend money when commercial banks are not able to , they regulate banks, and control the money supply

Who Owns the Bank? In U.S., corporations or individuals In some countries, government (nationalization)

Where Do Banks Operate? Unit banks: small towns or rural areas Regional or interstate banks: across a state or few National banks: across the country

Technology’s Transformation of Banking Automated Teller Machines (ATM) Online Banking Mobile Banking (apps)

Discussion . . . What are the different ways a consumer can bank today? Can you think of any ways that banking may have changed throughout the years?

Small Group Activity Create a chart outlining the different types of banks, the basic aspects of each type, and a major advantage and disadvantage of each type. Analyze these different types of banks based on the two viewpoints: what the bank does, and where the bank operates.

Answer, Justify, Co-sign, or Decline Whole Class Activity Answer, Justify, Co-sign, or Decline Checkpoint 1.1 (31)

Closure . . . Double-back to Word Study . . . BANK

Bellringer Word study: Federal Deposit Insurance Corporation

Objectives Describe the economic functions of banks. Explain a bank’s safekeeping function. Explain how credit is essential to a country’s economy. Define the bank’s role as financial intermediary. Discuss why fast and certain access to funds are keys to a banking system.

Economic Functions of Banks Safekeeping services that protect our money Deposit services that let our money grow Loan services that allow us to borrow money

Keeping Money Safe Physical and electronic security Keep accurate records (trail of business activities) Debit card (check card) allows us to withdraw cash and pay for goods/services Deposits insured by ____________ (you tell me)

Extending Credit Major lenders in our economy Without them, borrowers suffer Economy relies on banks to provide loans to keep it growing.

Transferring Funds Electronic funds transfer (EFT): electronic exchange of money from one account to another through computer-based systems Example(s): use of debit card or ATM Most funds transfers involve automated clearinghouses (ACHs)—processing credit and debit transactions and transferring funds from bank to bank Example(s): Federal Reserve Bank (60% of transactions)

Loan Cycle Bank uses deposits to make a car loan to customer Customer uses loan to buy car from car dealer Car dealer pays car salesman after sale of car Car salesman buys a new TV with the money received TV store deposits money into bank account

Small group activity . . . Get into groups of two or three and discuss the term financial intermediary. Have you heard this term before? Using what you already know about these two individual words, come up with your own definition of this term and how it applies to banks. Prepare to share your ideas with the class.

Financial Intermediary Institution that acts as a go-between in financial transactions Play a vital role in our economy Banks use money from savers to make loans Both saver and borrower receive services they need

Discussion . . . How do banks make money? How do offering credit cards and other loans contribute to this end?

More Discussion . . . While lending money is necessary to keep the economy flowing, what are some possible negative consequences of lending money? Discuss this issue in light of the Great Recession of the 21st century—how might poor lending decisions have affected the economy in this situation?

Answer, Justify, Co-sign, or Decline Whole Class Activity Answer, Justify, Co-sign, or Decline Checkpoint 1.1 (31)

Closure . . . Revisit Word Study: FDIC