1. Financial Institutions Banking and Financial Services

2. “Copyright and Terms of Service Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions: Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission from the Texas Education Agency; 2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only without obtaining written permission of the Texas Education Agency; 3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way; 4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged. Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from the Texas Education Agency and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty fee. Call TEA Copyrights with any questions you have. Copyright © Texas Education Agency, 2013. All rights reserved. 2

3. Two Main Types Depository Obtain funds, or deposits, from customers, and use those funds to conduct business 3-10% held on reserve, remainder can be loaned to customers Non-depository They do not hold deposits Sell services and charge fees for these services Copyright © Texas Education Agency, 2013. All rights reserved. 3

4. Types of Depository Institutions Copyright © Texas Education Agency, 2013. All rights reserved. 4

5. Commercial Bank Usually owned by stockholders Work with businesses and individuals For-profit institution Offer services such as: Checking and savings accounts Loans Investments Insurance Safe-deposit boxes Copyright © Texas Education Agency, 2013. All rights reserved. 5

6. Savings and Loans Usually privately-owned, by depositors Receive most deposits from individuals Usually have FSB in the name Main business is real estate Many services same as commercial banks Mutual Savings Banks are very similar, but state-chartered Copyright © Texas Education Agency, 2013. All rights reserved. 6

7. Credit Union Users must be members Non-profit, so any profit must be distributed to members as possibly lower rates or fees Many services similar to commercial banks Copyright © Texas Education Agency, 2013. All rights reserved. 7

8. Non-Depository Institutions Copyright © Texas Education Agency, 2013. All rights reserved. 8

9. Insurance Companies Sell financial protection in the event of a loss Premiums not considered as deposits Health, life Some policies have cash value, but still not considered as deposits Copyright © Texas Education Agency, 2013. All rights reserved. 9

10. Trust Companies Manage retirement or estate funds for a fee Pays interest on investments Funds invested for long-term future growth Copyright © Texas Education Agency, 2013. All rights reserved. 10

11. Brokerage Firms Paid commission to sell stocks and other securities May offer financial advice Customers’ money used to purchase stocks, bonds, and other securities Copyright © Texas Education Agency, 2013. All rights reserved. 11

12. Investment Banks Usually has large investors for clients Money invested in other businesses Profit comes from fees and interest earned on investments Wealth management is more of a total portfolio of wealth; investing is more about individual investment products Copyright © Texas Education Agency, 2013. All rights reserved. 12

13. Loan Companies Private companies, may charge higher interest May offer payday loans Borrowers are usually higher-risk Copyright © Texas Education Agency, 2013. All rights reserved. 13

14. Currency Exchanges Cash checks or sell money orders for a fee Usually in areas that may lack other financial services Fees may be higher due to lack of other services in the area Copyright © Texas Education Agency, 2013. All rights reserved. 14

15. Regulators Board of Governors of the Federal Reserve oversees state-chartered banks and trust companies that are members of the Federal Reserve FDIC (Federal Deposit Insurance Corporation) state- or nationally-chartered banks and savings institutions that are not members of the Federal Reserve state-chartered thrift institutions (former S & Ls) Office of the Comptroller of the Currency banks with “National” or “N.A.” Federal Savings Banks and any remaining Federal Savings and Loans, also called thrift institutions National Credit Union Administration (NCUA) federally-chartered credit unions Copyright © Texas Education Agency, 2013. All rights reserved. 15

16. Deregulation During the time of the Great Depression there were fewer services offered to customers, little competition, and not enough money for banks to lend. In the 1980s customers were looking at other financial institutions aside from banks because they could earn higher interest rates. Restrictions were loosened for the banks, known as deregulation, to increase the competition for banking services which then increased the number of customers and deposits. This deregulation also led to risky investing by Savings and Loans and was one of the many causes of the S & L crisis and the bankruptcy of the FSLIC (Federal Savings and Loan Insurance Corporation), the Savings and Loan version of the FDIC. Copyright © Texas Education Agency, 2013. All rights reserved. 16

17. Savings and Loans in Crisis 1980s deregulation-led to risky investing in real estate and loans by Savings and Loans In addition, 1980s recession led to failure and fraud of many S & Ls. Failed S & Ls: Silverado Savings & Loan Vernon Savings & Loan Lincoln Savings & Loan Midwest Federal Savings & Loan Copyright © Texas Education Agency, 2013. All rights reserved. 17

18. Banking Crisis of 2008 A major cause-losses due to ‘subprime’ mortgages subprime-higher rates typically due to semi- risky borrowers loans not repaid-led to foreclosures Affected banks in foreign countries due to similar mortgage lending practices Led to bailouts of major banks due to massive losses Copyright © Texas Education Agency, 2013. All rights reserved. 18

19. Independent Practice Assignments Savings and Loan Fraud Cases Assignment #1 – Students are to conduct research on the S & L crisis of the 1980s and create a table listing three Savings and Loans, the primary reasons for the failure of the S & L, and what measures have been taken to prevent a repeat of these types of cases. Start with the www.fdic.gov/bank/historical/S&L/ but your research may lead to other web sites. www.fdic.gov/bank/historical/S&L/ Act Comparison T-Chart and Summary Assignment #2 – Students will conduct research on the Gramm-Leach-Bliley Act of 1999 as well as additional research on the Glass-Steagall Act of 1933. They will compare and contrast the different provisions of each act and create a T-chart displaying the results of their findings. Identify the similarities with one color and the differences with another color. Financial Institution Gameboard Assignment #3 – In pairs, students are to create a gameboard using either posterboard, flipchart paper, an open file folder, or a word-processing template on the computer. If students use the computer they can use the mailing templates (such as Avery) and select the business card template. The topic will be Financial Institutions Fun Facts. Game blanks will consist of facts pertaining to the various types of financial institutions and their characteristics. There should be a mixture of types of blanks, for example, some will contain questions, some will actually be blank, some will have consequences for incorrect answers (such as skip a turn, back two spaces, … ) and some will have reward spaces (such as move ahead one space if you answer correctly, or take another turn). Copyright © Texas Education Agency, 2013. All rights reserved. 19