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The Banking System: Financial Institutions & Payment Services

Learn about financial institution classifications, payment services, the Federal Reserve System, check writing procedures, and bank reconciliation practices.

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The Banking System: Financial Institutions & Payment Services

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  1. Essential Standard 4.00 Understand the role of finance in business

  2. Objective 4.02 Understand the banking system.

  3. Topics • Classification of financial institutions • Common payment services • Federal Reserve System

  4. Classification of financial institutions

  5. Classification of Financial Institutions • What is a depository financial institution? • What are some types of depository financial institution?

  6. Classification of Financial Institutions continued • What is a non-depository financial institution? • What are some types of non-depository financial institution?

  7. Classification of Financial Institutions continued • Which characteristics of financial institutions are used for comparing them? • Services –Does the institution offer savings, checking, loans, credit cards, safe deposit boxes, trusts, etc? • Safety – Does the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insure the institution against losses? • What kinds of questions may be asked about each characteristic? • Convenience – Does the institution offer the access you desire? • Fees and Charges – What are the short and long-term costs of the services? • Restrictions – Are there minimum balances that must be kept, or other restrictions?

  8. Common payment services

  9. Common payment services • What are the first two steps in opening a checking account? • Signing a signature card is the first step • Endorsing a check for deposit • What is an endorsement? • An endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else. • What are the three types of endorsements? • Blank • Special/Full • Restrictive

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

  11. Special/Full Endorsement • What is a special or full endorsement? • Transfers payment of a check to someone else. • Why would this be used? • Can be used to make payment on a debt • Who is the payee on this example check? • Juan Delgado is the payee on this check.

  12. Restrictive Endorsement • What is a restrictive endorsement? • Limits use of the check so it can be deposited only to endorser’s account. • Why would this be the safest endorsement? • Safest type of endorsement, as it cannot be cashed by a thief or someone who finds the check. • When should it be used? • 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.

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

  15. Bank Reconciliation • What is a bank reconciliation? • A bank reconciliation is the document created to show how the two balances (your checkbook and bank statement) are brought into agreement. • What is an outstanding check? • Outstanding checks are 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. The Federal Reserve System

  18. The Federal Reserve System Some basics about The Federal Reserve: • What is the Federal Reserve System? • The Federal Reserve (Fed) is a centralized banking system. Sometimes called the “banker’s bank.” • Why does it exist? • The Fed exists 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? • The Fed has 12 districts.

  19. 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

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