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Business Finance© Thomson/South-Western

Chapter

Financial Institutions and Banking Services

8

8.1 BANKS AND OTHER FINANCIAL INSTITUTIONS

8.2 FINANCIAL SERVICES 8.3 INTERNATIONAL BANKING


Chapter 8Slide 2

Lesson 8.1

Banks and Other Financial InstitutionsGoals

Describe the history and development of banking in the United States.Explain the organization and activities of commercial banks and other financial institutions.


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TermsFederal Reserve Systemreserve requirementdiscount rateopen market operations


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Banking Systems

U.S. BANKING HISTORYFederal Currency

In 1792, the Mint Act authorized gold and silver coins in a variety of denominations.In 1861, paper money was first issued by the U.S. government.Prior to 1861, banknotes were issued by individual banks.


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Bank of the United States17911816

each lasted 20 yearsstate banks viewed these banks as a threat

First and Second Banks of the U.S.


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Comptroller of the Currencychartered national banksstabilized the value of U.S. banknotes

Federal Reserve ActIn 1913, Congress created the Federal Reserve System.

National Banking Act of 1864


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THE FEDERAL RESERVE SYSTEM

Federal Reserve System (Fed)supervises and regulates member banks to help them serve the public efficientlynational banks are required to joinstate banks may join


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member banksbanks that join the system

12 federal reserve districtsa central Federal Reserve Bank in each district

Board of Governorsseven members14-year term

Chair of Board of Governors4-year term

Organizational Structure


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reserve requirementthe percentage of funds that a bank is required to hold

clearing checkspaying checks among different banks in different cities

Federal Reserve Activities


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Setting Reserve RequirementsChanging the Discount Rate

discount ratethe rate the Fed charges on loans to member banks

Buying and Selling Government Securitiesopen market operations

the process of buying and selling government securities

Monetary Policy


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OTHER BANK REGULATORY AGENCIES

Federal Deposit Insurance Corporationprovides a federal government guarantee of depositsmaintains stability and public confidence in the nation’s banksinsures up to $100,000 per depositor, per bank


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regulates national banksexamines the loans and investments of national banksreviews the bank’s internal controlsevaluates abilities of bank’s managementdecides whether to approve applications for changes in the bank’s structurereviews rules and regulations regarding banking practices

Comptroller of the Currency


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What are the main activities of the Federal Reserve System?


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Financial Institutions in Action

BANKING DEPARTMENTSLoan Department

reviews credit applications and approves loans

Personal Bankingservices individuals and households


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services business clientsInternational Banking

works with companies that do business around the world

Trust Departmentmanaging money on behalf of customers

Commercial Banking


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FORMS OF FINANCIAL INSTITUTIONS

Depository Financial Intermediariesstore money make loans to stimulate growth

commercial bankssavings and loansmutual savings bankscredit unions


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life insurance companiesinvestment companiesconsumer finance companiesmortgage companiescredit card companies

Non-Depository Financial Intermediaries


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financial supermarketoffers a complete range of services

all-in-one account for a single fee, a variety of accounts are provided

online banking24/7 banking

Changing Competitive Environment


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Services OfferedSafetyConvenienceFees and ChargesRestrictions

Comparing Financial Institutions


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How do depository and non-depository financial intermediaries differ?


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Lesson 8.2

Financial Services

GoalsDescribe financial services commonly used by consumers.Identify types of commercial banking services.


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Terms

automatic teller machine (ATM)debit cardsafe-deposit boxtrustlock boxcommercial lending


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Consumer Services

There are five major categories of financial services.

They evolve continually.


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ELECTRONIC BANKING

electronic funds transfer (EFT)the use of computers and other technology for banking activities


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automated teller machine (ATM) (cash machine)

allows many banking servicesdebit card (cash card)

used for ATM transactionsusing money that’s in your account

credit cardborrowing to pay later

Automated Teller Machines


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Merchants accept debit cards to pay for purchases.

Direct DepositFunds are deposited electronically and available automatically.

Automatic Bill PaymentsBy presetting amounts for monthly expenses, payments are made automatically.

Point-of-Sale Payments


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Technology developments have created a cyber-banking network.

Banking can be done anytime, anywhere.cell phonescomputers

Web-only banks on-lineATM access

Online Banking


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SAVINGS SERVICES

Financial institutions accept money from customers for safekeeping.

savings accountscertificates of depositmoney market accountsretirement accounts


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PAYMENT SERVICESChecking Accounts

Consider the followingminimum balance requiredinterest ratemonthly service chargeother feesadditional services offered


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Most debit cards work in two ways.You sign a receipt.You provide your PIN.

Debit Cards


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Banks and Internet companies serve as third parties to facilitate online bill payments.cybercash or e-cash services

create their own e-money that serves as a medium for exchange for online transactions

Online Payments


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stored-value cardsprepaid cards for a variety of items

smart cards (electronic wallets)an imbedded microchip can store prepaid amounts as well as information

Other Electronic Payment Methods


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LENDING SERVICES

Banks offer various types of lending services.auto and business loansmortgagescredit cardsBe wary of checks included with credit card statements.

the check amount is charged to the credit cardhigher loan rate than other loans


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OTHER FINANCIAL SERVICES

Storage of Valuablessafe-deposit boxes

Rented annually, these boxes are for the personal use of bank customers for storing valuable items.


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financial adviceinvestment services

Management of Truststrust

a legal agreement for one party to control property for the benefit of another

Investment Advice


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What electronic banking services are commonly available for consumers?


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Commercial Banking

CASH MANAGEMENTCash Receipts

lock boxsecured postal box used to receive customer payments

Cash Paymentschecking accountelectronic payment systems


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BUSINESS LOANS

commercial lendingloans to businesses

Commercial Loan Purposesreal estateconstructionequipment needsoperations, inventory, or unplanned expenses


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term loansa line of creditcompany credit cardscontract financingbridge loansasset-based lending

Types of Commercial Loans


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BUSINESS ASSISTANCE

Information ServicesBanks often offer information to companies through personal contact or group seminars.


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The SBA coordinates with banks to implement its loan programs.

often guarantees bank loans to small businesses

Small Business Administration Programs


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What are the main commercial services offered by banks?


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Lesson 8.3

International Banking

GoalsDescribe the development of international banking activities.Identify organizations that assist with international finance activities.


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TermsWorld BankInternational Monetary Funddevelopment bank


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Global Banking Activities

EARLY INTERNATIONAL BANKINGAncient Civilizations

The Roman Empire developed banking innovations.

saving deposits receiptsloans


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The Bank of Barcelona was one of the first enterprises to offer an array of banking services.The Bank of France, which had a strong financial influence in Europe, was started in 1800.

European Developments


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INTERNATIONAL TRADE AND BANKING

The International Banking Act passed in 1978.

requires foreign banks operating in the U.S. to operate under federal banking regulationsDeposit insurance is required to do business in the U.S.


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Recently, over 100 countries agreed to a global standard for evaluating the financial stability of banks.

Increased international banking activity has resulted in more standardized regulations across borders.


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Cell phones in South Africa help workers compensate for the lack of convenient availability of banks.

AsiaThe currency crisis of the late 1990s caused major banks to downsize their scope.In some parts of Asia, informal banking still takes place.

Africa


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Conflicting banking regulation in various countries reduce the opportunity for standardization.The euro has not been adopted uniformly.

Latin AmericaBrazil has three major banks.Brazilians usually pay bills at banks.Internet payments are gaining popularity in Brazil.

Europe


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The Saudi Arabian Monetary Agency was established in 1952.

maintains a stable currency valueregulates various financial institutionshandles payments of government funds

Middle East


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What relationship exists between international trade and global banking activities?


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Global Financial Organizations

WORLD BANKworld bank

created in 1944 to provide loans for rebuilding after WWIInow provides economic assistance to less-developed countries


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INTERNATIONAL MONETARY FUND

International Monetary Fund (IMF)helps promote economic cooperation by maintaining an orderly system of international trade and exchange rates

Three main duties of the IMF are:Analyze Economic SituationsSuggest Economic PoliciesProvide Loans


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ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD)

The OECD has a commitment to democratic government and the market economy.


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REGIONAL DEVELOPMENT BANKS

development bankan organization of several countries created to provide financing for economic development to countries in a region


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provides funds and technical assistance programs to enhance economic and social development

Asian Development Bankstrives to improve the quality of life for people in Asia and the Pacific

Inter-American Development Bank (IDB)


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dedicated to reducing poverty and improving the lives of people in Africa

Other Regional Development BanksA variety of regional development banks seek to reduce poverty and expand economic activities.

African Development Bank


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What is the purpose of a regional development bank?


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Performance Indicators Evaluated

Explain the importance of an advertising campaign.Define an effective advertising campaign for an actual business.Determine the needs of the target market when creating an advertising campaign.


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Describe special promotions for the advertising campaign.Define the benefits the advertising campaign provides the business.Deliver an effective oral presentation that indicates self-confidence.

Communicate a schedule of events for an advertising campaign.


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Think Critically1. Why have banks become more dependent

on advertising campaigns?2. Why are banks using humorous

commercials as part of their advertising campaigns?


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4. Give two examples of promotions that banks can offer potential customers.

3. What has competition in the banking industry done to promotions offered by banks?

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