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Banking Today Presented by Stacy Cox

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1 Banking Today Presented by Stacy Cox
Banking Basics

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

3 What Is A Bank? A bank is a type of financial institution
A financial institution is any organization that provides services related to money

4 Services Provided by Banks
Deposits Savings accounts Checking accounts Money Market accounts Certificates of deposit Retirement accounts Loans Car loans Home loans Student loans Business loans Credit cards Other Services Insurance Investments Trust services Safe deposit boxes Money transfers

5 What Is A Bank? Banks are organizations that handle money but also includes: Protecting money Lending money Issuing money Sending money from one place to another Keeping track of money Helping customers get more money Helping businesses find money

6 What Is A Bank? Banks handle money and most make money…for profit banks are expected to make a profit for their owners (individuals, groups, or stockholders) Lending money at a higher interest rate than they pay depositors Providing services such as safe deposit boxes Charging fees of various kinds

7 What Is A Bank? Banks are highly regulated by local, state, federal and international agencies To open a bank you have to have a document called a charter…details how the bank will be operated and regulated Charters are issued by state and federal governments

8 What Is A Bank? What makes a bank a bank?
They are depository institutions…customers give money to it (deposit) and then come back for their money later (withdrawal) No bank keeps 100% of it’s deposits, but must keep reserves on hand…a percentage of a bank’s funds that must be held separately to ensure that the money will be available when customers want to withdrawal Banks lend money that customers deposit Charge interest to the borrower Pay interest to the depositor

9 What Is A Bank? Credit union cooperatives and savings associates are not-for-profit depository institutions Offer similar services as banks but instead of making a profit for it’s owners, they return the profits to members in the form of lower rates and fees

10 Types of Banks Retail banks – provide services for customers
Deposit accounts, mortgage, auto, and personal loans as well as credit cards Internet banks – type of retail bank that has no physical location or building Customers have access from anywhere and sometimes these banks pay higher rates on deposits because they do not have the expense of maintaining physical locations

11 Types of Banks Commercial bank – focuses on business customers, providing bank accounts and specialized services such as foreign exchange, investment services, and capital loans May have limited personal checking and savings accounts Money center banks – very large, often international banks whose primary customers are businesses, other banks, and governments

12 Types of Banks After the stock market crash in regulations stated that banks were prohibited from providing investment services and banks…had to choose one or the other and so Investment banks were created Help companies prepare to become publicly traded companies After 1999, banks were allowed to provide both kinds of services

13 Types of Banks Governments establish central banks to help stabilize a country’s money system In 1919 the Federal Reserve System was established A central bank, which is part of the Federal Reserve System, oversees a country’s banking system Central banks lend money when commercial banks are not able, regulate banks, and control the money supply

14 Who Owns the Bank? In some countries, when owned by the government it is called nationalization In the US banks are owned by corporations or individuals, but federal and state regulations have an effect on a bank’s operations

15 Where Do Banks Operate? May be classified by how large of an area in which they operate Unit banks – bank with one location; found in small towns or rural areas Regional banks or interstate banks – banks that branch across a state or a few states in the same region Specialize in retail banking and do not operate internationally National banks – have offices across the country Bank of America and Wells Fargo are examples

16 Technology’s Transformation of Banking
You can now do banking at a machine, from your computer, or even your mobile phone Automated teller machines (ATMs) – provide a means for self service banking Most banks do not charge a fee for their customers but they do impose a fee for those who are customers of another bank…another source of income for banks ATMs can be owned by a bank or private company

17 Banking Functions Available Through an ATM
Making Cash Withdrawals Original purpose of the ATM Amount of withdrawals per day is limited Most popular ATM service Checking Account Balances View a balance even when the bank is not open Making Deposits Check or cash can be deposited Checks and currency are scanned by the ATM Funds deposited through ATMS may not be immediately available

18 Online Banking Online banking – also known as home banking, allows customers to conduct financial transaction on a secure website Most banks offer some form of online banking Two types of online banking programs—transactional and non-transactional

19 Online Banking Transactional online banking allows customers to perform common functions Transferring funds Paying bills Applying for loans Purchasing or selling securities Peer-to-peer payments (P2P) – immediate money transfer from one person to another…all you have to know is their or cell phone number to send a virtual check PayPal is an example

20 Online Banking Non-transactional online banking is the ability to review information rather than make a transaction Viewing checking account balances Viewing recent transactions Downloading bank statements Seeing and printing images of paid checks

21 Mobile Phone Deposit Apps
Mobile Banking Use the camera on a Smartphone to take a picture of the front and back of a check Receive deposit confirmation Mobile Phone Deposit Apps Use text messaging to find out the balance Set up automatic text alerts Text Banking Pay bills Bill Payments Find the nearest ATM or banking center ATM Locators Make an instant payment to someone P2P payments Make a purchase by waving a Smartphone at a specialty equipped device; the payment is taken directly from the bank account…like a debit card In-store payments

22 Banks and the Economy Presented by Stacy Cox
Banking basics

23 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 a financial intermediary Discuss why fast and certain access to funds are keys to a banking system.

24 Economic Functions of Banks
With the help of technology, banks are able to offer a variety of services: Safekeeping services that protect our money Deposit services that let our money grow Loan services that allow us to borrow money Allows borrowers, savers, buyers, and sellers to be able to successfully transact their business Financial transactions are essential to economic growth Banking expands the economy, provides jobs, income, investment returns, and tax revenues

25 Keeping Money Safe Our economy functions efficiently because our banking system give us the confidence that our money is safe Where do you keep your money? Wallet, backpack, or bedroom…but the bulk is probably kept in a bank because we want that security Banks provide physical security and federal deposit insurance protects our money in the event of a bank failure

26 Keeping Money Safe We rely on banks to keep accurate records of our accounts…trail of business transactions Most of our transactions occur not with actual currency but through checks, ATMs, and debit cards (also known as a check card, allows bank customers to withdraw cash to pay for goods and services in stores or online)

27 Keeping Money Safe Banks are physically safe…
Surveillance equipment and security systems Nearly indestructible vaults with alarm systems and antitheft devices Teller windows have bulletproof glass and other safety features Protection against internal theft as well… Tellers and other employees must go through background checks Daily checks on cash drawers and vaults, as well as audits and internal controls

28 Keeping Money Safe If a robbery does occur…
Banks are protected by insurance they purchase called banker’s blanket bond (protects against robberies or employee theft) In the case of bank failure… The Federal Deposit Insurance Corporation (FDIC) insures each depositor up to $250,000

29 Extending Credit Banks are the major lenders in our economy
Car or house loan Businesses borrow to purchase materials or equipment or expand their markets Interest from loans is the main source of revenue for most banks Without banks extending credit, borrowers suffer, as well as the economy

30 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 new TV with the money received TV store deposits money into bank account

31 Financial Intermediary
A major function of a bank is to act as a financial intermediary…an institution that acts as a go-between in financial transactions Financial intermediary facilitates transactions between the savers and borrows Example: savers need a place to put their savings…banks can meet that need while borrowers need someone to lend them money. Banks use money from the savers to loan to the borrowers. Banks accept the risk of the loan not being repaid

32 Transferring Funds Our economy is fast-paced…without the transfer and payment systems provided by banks, our economy would slow down to a crawl Electronic funds transfer (EFT) is the electronic exchange of money from one account to another through computer-based systems…debit cards and ATMs

33 Transferring Funds Automated clearinghouses (ACHs) are electronic networks for financial transactions ACHs process credit and debit transactions and transfer funds from bank to bank. There are several ACHs in the US, with the Federal Reserve Bank being the largest, handling about 60% of the ACH transactions

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