Innovations in Modern Banking Chapter 10: Section 3

What Services do banks provide 1. customers can store money 2. customers can earn money 3. customers can borrow money

Customers can store money Banks safe places to store money/valuables Safe deposit boxes 1. Customers deposit money 2. bank stores currency in vaults 3. banks insured against theft and other loss 4. customer accounts insured in case bank fails

Customers can earn money Customers deposit money earn interest on accounts Other forms of accounts: Money market Certificate of Deposits (CDs)

Customers can borrow money Banks allow borrowing of money Fractional Reserve Banking Banks provides different loans for different circumstances Mortgage Loan property = collateral Credit Card

Question Explain the ways in which bank transactions are beneficial to customers and banks. Customers: safe place for money and valuables Earn interest Obtain needed loans Banks: Can earn money by making loans Charging interest

Fractional Reserve banking

Prior to 1980s: government regulated banks Banking Deregulation Prior to 1980s: government regulated banks Prevented banks from operating in more than 1 state Also prevented number of branches for banks Deregulation in 1980s and 1990s ended these restrictions major changes

Bank mergers Larger banks acquire smaller banks Benefits of Mergers Bank of America and JP Morgan Chase and Co.  2 largest banks in the US Assets around $1 trillion each Benefits of Mergers Increased competition Interest rates low More consumer services More bank branches (number of banks declined) Able to better technology

Bank mergers Problems: Fewer banks to choose from Larger banks may show less interest in small customers and local community issues Customers choose a bank that suits them Large banks need to respond to consumer wants to lose customers

Banking services Financial Services Act 1999 Lifted restrictions from Banking Act of 1933 limited competition Change allowed banks to sell stocks, bonds, and insurance Customers can have all financial needs in one bank “financial supermarket” People still tend to rely on insurance companies for insurance needs

Technology and banking 1. Automated Teller Machines (ATMs) 2. Debit Cards 3. Stored-Value Cards 4. Electronic Banking

Automated Teller machines Oldest and most familiar developments in electronic banking ATMs data terminals linked to a central computer which is linked to individual banks’ computers Magnetic strip on debit card linked to account information Check balance Make deposits Withdraw cash Transfer money between accounts Make loan payments

Debit Cards Also called check cards Look like credit cards Makes immediate payments Only allow you to spend the money that you actually have

Stored-value cards Prepaid cards Examples: transit fare cards, gift cards from retail stores, telephone cards No need to worry about having exact change each time they ride a bus or use a pay phone

Electronic Banking Can use banking services from home internet provider Direct deposit Transfer funds Pay bills Print statements Information security and identity theft Banks need a lot of personal information to set up electronic banking Banks need to tell customers about privacy policies and offer customers opportunity to decide what information can be shared with others