2. Objective 4.02 Understand the banking system

3. Classification of financial institutions

4. Classification of Financial Institutions Depository –Earns money to finance their business by accepting deposits from customers –Types include: Commercial banks –Most common –Offer many different services including savings, loans, and checking accounts. Savings and loan associations (S&Ls) –Traditionally specialize in savings accounts and home loans –Have become very similar to commercial banks.

5. Classification of Financial Institutions –Types of Depository Institutions continued … Mutual savings banks –are owned by the depositors and specialize in savings and home loans. Credit unions –not-for profit, serve their members only, and are owned by their depositors.

6. Classification of Financial Institutions continued Non-depository –Earns money to finance their business by selling specific services such as policies, investments, and loans –Types include: Life insurance companies Investment companies Consumer finance companies Mortgage companies Check-cashing outlets Pawnshops

7. Classification of Financial Institutions continued Selecting A Financial Institution –What should you look for? Services- savings accounts; checking accounts; loans; credit cards and other services like safe deposit boxes and investment advice Safety- Does the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insure the institution against losses? Convenience- 24-hour banking; location of branch offices Fees and charges- ATM charges; checking account fees Restrictions- Minimum balance requirements

8. Checks and Payment Methods 4.02 Understand the Banking System

9. Checks and Payment Methods Opening a checking account –Signing a signature card is the first step Bank compares signature on checks to signature on card –Joint account- 2 or more people –Fill our a deposit slip to deposit money in your account

10. Checks and Payment Methods Endorsing a check –An endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else. –Different types of endorsements: Blank Full Restrictive

11. Blank Endorsement Consists of endorser’s name only Anyone who has a check with a blank endorsement may cash it.

12. Special Endorsement Transfers payment of a check to someone else. Can be used to make payment on a debt Juan Delgado is the payee on this check.

13. Restrictive Endorsement Limits use of the check so it can only be deposited to endorser’s account. Safest type of endorsement, as it cannot be cashed by a thief or someone who finds the check. Safest endorsement to use when mailing a check for deposit or when using the ATM for deposit.

14. Check Writing Procedures 1.Ensure all information is written in the check register first, and ensure checks are written in numerical order. 2.Write the date the check is written. 3.Write the payee’s name on the line following Pay to the Order of….. 4.Write the amount of the check in figures after the $ sign

15. Check Writing Procedures continued 5.Write in the amount of the check in words. 6.Write in the purpose of the check. 7.Sign the check.

16. Bank Reconciliation Bank reconciliation- A bank reconciliation is the document created to show how your own record of your checking account and the bank’s record of your account were brought into agreement. Outstanding checks- checks that have not been deducted from the bank statement balance

17. Steps in a Bank Reconciliation 1.Obtain the monthly bank statement. 2.Determine checks paid. 3.Find differences between the monthly bank statement and monthly check register. 4.Calculate the adjusted balance. 5.If the balances do not agree, check the steps again and recalculate.

18. Other Types of Payments Electronic Payments –Debit cards (check cards) amount of purchase is deducted from your checking account –Online payments- paying bills or making purchases over the internet –Stored-Value cards- prepaid cards for phone service, laundry, school lunches –Smart Cards- similar to ATM cards, embedded microchip stores prepaid amounts

19. Other Types of Payments Certified checks- personal check for which the bank has guaranteed payment Cashier’s checks- a check that a bank draws on it own funds Traveler’s checks- used for making purchases when you are away from home. Money orders- used by someone who does not have a checking account and needs to send a payment by mail. Can be purchased at a bank or post office

20. The Federal Reserve System

21. What is the Federal Reserve System? –a centralized banking system Why does it exist? –to supervise and regulate member banks and help serve the public efficiently Who participates? –All national banks are required to be members of the Fed; state banks have the option of joining How is it organized? –Divided into 12 districts with a central Federal Reserve Bank in each district

22. The Federal Reserve System continued Services provided by the Fed: –Supervision of banks –Participation of open market activities –Acting as a clearinghouse –Holding reserves –Approving bank mergers –Supplying paper currency –Managing the discount rate