17-1 Banks and Other Financial Institutions

1. Goals Explain the purpose of the Federal Reserve System List the types of financial institutions. Discuss factors for selecting a financial institution. 17-1Banks and Other Financial Institutions

2. The Banking System • The Federal Reserve System • Most banks attempt to attract the deposits of customers. • As an individual you cannot open an account in a Federal Reserve Bank because it is a bank for banks. • The federal government set up the Federal Reserve System (Fed) to supervise and regulate member banks and to help banks serve the public efficiently. • Banks that join the system are known as member bank. • Federal Reserve Activities • One service provided by the Fed is the holding of reserves. • Banks cannot lend all of the money they receive from customers • A bank will only lend a certain percentage of deposited funds. • Another service of the Federal Reserve System is clearing checks for member banks. • Clearing refers to the paying of checks among different banks in different locations.

3. Cont…The Banking System • Banking and the economy • Several million people work in banks, savings and loan associations, credit unions, and other financial institutions. These are ways individuals use banking services: • 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. • Process credit card transactions. • Save for a vacation.

4. Types of Financial Institutions • Deposit Institutions • Deposit institutions, also called depository intermediaries, accept deposits from people and businesses and use them to finance their business. • Commercial Banks • This is the most common way of banking. • Commercial banks are often called full-service banks because they offer a wide range of financial services. • Savings and Loan • Traditionally, a savings and loan association (S&L) specialized in savings accounts and making loans for home mortgages. • Today, many S&Ls use the words savings bank in their names. • Mutual Savings Bank • A mutual savings bank is a savings bank that is owned by, and operated for the benefit of its depositors. • Credit Unions • Acredit union is a user-owned, not-for-profit, cooperative financial institution.

5. Cont...Types of Financial Institutions • Non-Deposit Financial Institutions • Also called non-depository intermediaries. • They do not take or hold deposits. • Life Insurance Companies • People commonly buy life insurance to provide financial security for their dependents. • Investment Companies • Many investors own shares of one of the more than 60,000mutual funds worldwide. • Investment companies make these mutual funds available. • Consumer Finance Companies • A business that specializes in making loans for long-lasting or durable goods, such as cars and refrigerators, and for financial emergencies . • Mortgage Companies • Mortgage companies , along with other financial institutions, provide loans for buying a home or other real estate. • Check-Cashing Outlets • People who do not have bank accounts may use check-cashing outlets (CCOs) to cash paychecks and obtain other financial services. • Some services provided at a CCO are more expensive than at other business. • Pawnshops • Pawnshops make loans based on the value of some tangible object, such as jewelry or other valuable items.

6. Selecting a Financial Institution • Services Offered • There are four basic types of banking services you will use. • Savings account • Checking and payment accounts • Loans and other credit plans • Other services, such as safe-deposit boxes and investment advice • Safety • The Federal agency that helps to regulate banks and other financial institution is the Federal Deposit • Convenience • Do you want 24-hour banking service? Do you want branch offices near your work or home?These are some of the factors you will need to think about as you decide about convenience. • Fees and Charges • Financial services have costs. • Restrictions • Costs are not measured in dollars. • If you must keep $500 on deposit to get “free” checking. • You may be losing the chance to earn interest on those funds at another institution.

7. Questions • The financial institution most likely to charge the highest rate for a loan would be a… • Bank • Pawnshop • Credit union • Mortgage company • If deposit insurance is most important to you when selecting a financial institution, you are most concerned with… • Safety • Convenience • Services • fees