1. Economics Chapter 10 Section 2 & 3 Notes
Money and Banking
Economics
Chapter 10
Section 2 & 3 Notes

2. Financial Institutions in the United States
Type 1: Commercial Banks
Privately owned commercial banks are oldest type of banks
initially created to provide business loans
today, checking and savings accounts, loans, investments, credit cards
All national, about 16 percent of state commercial banks belong to the Fed

3. Financial Institutions in the United States
Type 2: Savings Institutions
S&Ls first chartered by states in 1830s
took savings deposits; provided home mortgage loans
today, provide many of same services as commercial banks
Since 1933, federal government also charters S&Ls
many federally chartered S&Ls call selves savings banks

4. Financial Institutions in the United States
Type 3: Credit Unions
In 1909, first credit union chartered; 1934, federal system created
offer savings and checking accounts; specialize in auto, mortgage loans
deposits insured by National Credit Union Association (NCUA)
Credit unions have membership requirements
cooperatives: nonprofit organizations owned by, operated for members

5. Section 3
Innovations in Modern Banking

6. What Services Do Banks Provide?
Service 1: Customers Can Store Money
Banks store currency in vaults; insured against theft, other loss
Customers also store
money in bank accounts; insured against bank failure
papers and valuables in safe deposit boxes

7. What Services Do Banks Provide?
Service 2: Customers Can Earn Money
Savings accounts, some checking accounts pay interest
Money market accounts, CDs pay higher interest rate

8. What Services Do Banks Provide?
Service 3: Customers Can Borrow Money
Banks lend money through fractional reserve banking
percent of deposit banks must keep is set by Fed
Banks make loans to customers it approves
loans have set time period and interest rate; property is collateral
Credit card purchases are loans; interest charged after one month

9. Banking Deregulation Bank Mergers
Deregulation led to mergers; no more restrictions on interstate banking
Advantages: more competition meant low interest rates, more services
also more branches; economies of scale, especially for technology
Disadvantages: fewer banks to choose from
fear larger banks uninterested in small customers, local communities

11. Banking Deregulation Banking Services
Financial Services Act of 1999 lifted last restriction on banks
Banks, insurance companies, investment companies compete
sell stocks, bonds, insurance, traditional banking services
Customers continue to use different companies for different services