Objective 4.02

1. Objective 4.02 Understand the banking system

2. Classification of financial institutions

3. 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.

4. 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.

5. 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

6. 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

7. Checks and Payment Methods4.02 Understand the Banking System

8. 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

9. 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

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

11. 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.

12. 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.

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

14. Check Writing Procedures continued • Write in the amount of the check in words. • Write in the purpose of the check. • Sign the check.

15. 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

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

17. 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

18. 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

19. The Federal Reserve System

20. The Federal Reserve System • 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

21. 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