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Banks & Other Financial Institutions. Ch. 17-1 PoB 2011. The Federal Reserve System & Activities. Federal Reserve System (FED) – set up by federal government to supervise and regulate member banks and to help banks serve the public efficiently

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the federal reserve system activities
The Federal Reserve System & Activities
  • Federal Reserve System (FED) – set up by federal government to supervise and regulate member banks and to help banks serve the public efficiently
    • An individual cannot open an account in a Federal Reserve Bank because it is the bank for banks
    • All national banks are required to join the Fed
      • State banks can join too
      • Member Banks – banks that join the system
    • United States is divided into 12 Federal Reserve districts; with a central bank in each
federal reserve activities
Federal Reserve Activities
  • Reserves –the amount of money deposited by customers that banks are required to keep that are held by the Fed
    • Result = banks will lend only a certain percentage of deposited funds
  • Clearing – refers to the process of paying checks and other payments among different banks
banking and the economy
Banking and the Economy
  • How we use banking service:
    • Borrow money to build roads
    • Borrow money to buy seeds for crops
    • Deposit cash from business operations
    • Finance a college education
    • Invest for retirement
    • Obtain a mortgage
    • Save for a vacation
deposition institutions
Deposition Institutions
  • Deposit Institutions (depository intermediaries) – accept deposits from people and business and use them to finance their business
    • Commercial Banks(full-service banks) – offer a wide range of financial services
      • Offer checking accounts, provide savings accounts, and make loans
    • Savings and Loan Associations – specializes in savings accounts and making loans for home mortgages
    • Mutual Savings Bank – is a savings bank that is owned by, and operated for the benefit of the depositors
    • Credit Unions – a user-owned, not-for-profit, cooperative financial institution
      • Regulated by the National Credit Union Administration (NCUA)
non deposit financial institutions
Non-Deposit Financial Institutions
  • Non-Deposit Institutions (non-depository intermediaries) – they do not take or hold deposits
    • Life Insurance Companies – offers life insurance and investments
    • Investment Companies – offer investment opportunities for long-term growth of their money
    • Consumer Finance Companies – specializes in making loans for long-lasting or durable goods
    • Mortgage Companies – provide loans for buying a home or other real estate
    • Check-Cashing Outlets – besides check cashing offer a wide range of services such as electronic tax filing, money orders, postal boxes, and utility payments
    • Pawnshops – make loans based on the value of some tangible object
      • Charge higher fees and should be avoided
selecting a financial institution
Selecting a Financial Institution
  • Services Offered
    • Savings accounts
    • Checking and payment accounts
    • Loans and other credit plans
    • Other services, such as safe-deposit boxes and investment advice
  • Safety
    • Federal Deposit Insurance Corporation (FDIC) – the federal agency that helps to regulate banks and other financial institutions
      • Insures all accounts in the same name at each bank up to an amount of $250,000
      • 99% of all banks are FDIC insured
selecting a financial institution1
Selecting a Financial Institution
  • Convenience
    • More convenience may mean higher costs for banks, but online banking has resulted in lower costs for customers
  • Fees and Charges
    • ATM fees
    • Checking and usage fees
    • Overdraft fees
      • Can add up to hundreds in a short amount of time
  • Restrictions
    • Losing out on interest in a checking account
    • Locked in deposits
    • Balance limits

What is the main purpose of the Federal Reserve System?

What are some examples of non-deposit financial institutions?

What factors should be considered when selecting a financial institution?