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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?