1. BANKING p. 24-25, 26-27 & 76-77 Guide to Money and Investing

2. What kinds of roles can banks play?  retail/commercial  deposits, transaction demands  Investment  Corporate debt  Initial Corporate Offerings (IPO’s)  Insurance  Brokerage REGULATION that affects these roles 1999 Gramm-Leach - deregulated banking 2002 Glass-Steagall - contributed more to deregulation 2011 Dodd-Frank - tries to get back to more regulation

3. DISCUSS Do you think the problem is too much regulation OR too little regulation?

4. Role of Federal Reserve What is the Fed? Name 4 important functions of the “FED” Sets economic policy—maintaining value of the dollar, balance flow of money in circulation, sets interest rates Controls money flow—buys and sells securities to increase and decrease Deposits & withdraws funds (pays social security, medicare, interest payments on U.S Treasury Bonds, other gov’t programs) Lends to other banks at a discount Interprets laws & ensures quality of loan practices Guards gold

5. DISCUSS Which role has the Federal Reserve NOT handled well and how did that contribute to the financial crisis that began in 2008?

6. Money Flow What does it mean that the Federal Reserve “controls money flow”? Adds money to the economy by buying securities, such as bonds— prints money to pay for them—pours that money into the economy (quantitative easing); interest rates go down (supply and demand) Sells bonds and takes money out of the economy; interest rates go up (supply and demand) Determines how much money the banks have to keep “on hand”— usually 10% to “cover” unusual demand

7. DISCUSS Does 10% sound like enough money to reserve? What if there is a run on the banks? Who insures bank deposits in the U.S.? FDIC

8. RATING SYSTEMS Name the 3 ratings systems  Standard & Poors  Fitch Ratings  Moody’s

9. What do ratings agencies rate?  Bonds and other products for________________?  corporations  sovereign entities  municipal entities  international entities

10. What is the top rating? AAA What is the lowest rating a bond can have to be “Investment Grade” BBB What does “Speculative Grade” mean? More risky

11. Who uses ratings? Individual investors Institutional investors such as pension funds, mutual funds Businesses evaluate before using a financial institution for backing

12. DISCUSSION How did the ratings agencies contribute to the financial crisis?