Banks are businesses. How do they earn a profit?

Banks are businesses. How do they earn a profit? https://apps.pnc.com/rates/servlet/DepositRatesSearch

Lesson 3.1 The Banking System Essential Questions: Why are banks (and credit unions) vital to the U.S. economy? How is the banking system organized?

Barter Economy – a moneyless economy; trading goods & services for other goods & services

Barter Economy – a moneyless economy; trading goods & services for other goods & services What are some potential problems with a barter economy?

Barter Economy – a moneyless economy; trading goods & services for other goods & services *In order for the exchange to take place, there must be a “mutual coincidence of wants”Money – anything that all (or most) of the people of a society are willing to accept as payment for goods and services What are some potential problems with a barter economy?

Commodity Moneyvs. Fiat Money Colonial America Buckskins Native Americans Wampum

In Ancient Rome, soldiers were paid in salt Salarium→ “Salary”

Serve as a “Medium of Exchange” Functions of Money Serve as a “Measure of Value” Serve as a “Store of Value”

Must be Portable Must be Durable Characteristics of Money Must be Divisible Must be Limited in Availability

http://www.moneyfactory.gov/ Video Clip U.S. Bureau of Printing & Engraving U.S. Mint http://www.usmint.gov/index.cfm?flash=yes Video Clip

What important things do banks do?

What important things do banks do? • Safe place to deposit your money (insured by the FDIC up to $250,000) • Pay you interest on your savings account • Allow easy access to your money (via debit cards and withdraw at an ATM) • Issue credit cards so people can buy things on credit • Process electronic payments (paying with cash is becoming rare) • Loan money to customers make large purchases (houses, cars, etc.) • Loan money to entrepreneurs so they can start businesses

What important things do banks do? • Safe place to deposit your money (insured by the FDIC up to $250,000) • Pay you interest on your savings account • Allow easy access to your money (via debit cards and withdraw at an ATM) • Issue credit cards so people can buy things on credit • Process electronic payments (paying with cash is becoming rare) • Loan money to customers make large purchases (houses, cars, etc.) • Loan money to entrepreneurs so they can start businesses • How do banks make profit? • Banks pay low interest on savings deposits and then take most of the money deposited and loan it to customers/borrowers at a much higher rate • Even if some people can’t repay their loans, the bank can absorb the loss

What important things do banks do? • Safe place to deposit your money (insured by the FDIC up to $250,000) • Pay you interest on your savings account • Allow easy access to your money (via debit cards and withdraw at an ATM) • Issue credit cards so people can buy things on credit • Process electronic payments (paying with cash is becoming rare) • Loan money to customers make large purchases (houses, cars, etc.) • Loan money to entrepreneurs so they can start businesses • How do banks make profit? • Banks pay low interest on savings deposits and then take most of the money deposited and loan it to customers/borrowers at a much higher rate • Even if some people can’t repay their loans, the bank can absorb the loss • What is a credit union? • Credit unions are non-profit financial institutions that exist for the benefit of their members. • Members put money in their account to loan to other members • When you borrow, you’re borrowing from other members • Interest rates are usually lower, but might not offer mortgages/large loans

Structure of the Fed • A seven-member Board of Governors • Members of the board are appointed by the President, approved by the Senate (serve 14-year staggered terms) • One member of the board is appointed by the President to be the Chairperson (serves a 4 year term) • The system includes 12 District Banks • The Federal Open Market Committee (made up of the Board of Governors and presidents of the District Banks) decides monetary policy

Chairman of the Fed President Trump nominated Jerome Powell as Fed Chairperson. His term began in February 2018. He will serve a 4-year term. Janet Yellen was the previous Chairperson of the Fed (2014 – 2018).

Fed District Banks

Video Clip In 2008, George W. Bush worked with Congress to create a plan to bail out America’s banks. Why do you think he did this? Explain the overall importance of banks to the U.S. economy in your response. Respond in 5 to 7 lines

Banks are businesses. How do they earn a profit?