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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
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Business Finance© Thomson/South-Western
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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Business Finance© Thomson/South-Western
Chapter 8Slide 3
TermsFederal Reserve Systemreserve requirementdiscount rateopen market operations
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Business Finance© Thomson/South-Western
Chapter 8Slide 4
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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Business Finance© Thomson/South-Western
Chapter 8Slide 5
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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Business Finance© Thomson/South-Western
Chapter 8Slide 6
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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Business Finance© Thomson/South-Western
Chapter 8Slide 7
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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Business Finance© Thomson/South-Western
Chapter 8Slide 8
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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Business Finance© Thomson/South-Western
Chapter 8Slide 9
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Business Finance© Thomson/South-Western
Chapter 8Slide 10
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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Business Finance© Thomson/South-Western
Chapter 8Slide 11
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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Business Finance© Thomson/South-Western
Chapter 8Slide 12
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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Business Finance© Thomson/South-Western
Chapter 8Slide 13
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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Business Finance© Thomson/South-Western
Chapter 8Slide 14
What are the main activities of the Federal Reserve System?
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Business Finance© Thomson/South-Western
Chapter 8Slide 15
Financial Institutions in Action
BANKING DEPARTMENTSLoan Department
reviews credit applications and approves loans
Personal Bankingservices individuals and households
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Business Finance© Thomson/South-Western
Chapter 8Slide 16
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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Business Finance© Thomson/South-Western
Chapter 8Slide 17
FORMS OF FINANCIAL INSTITUTIONS
Depository Financial Intermediariesstore money make loans to stimulate growth
commercial bankssavings and loansmutual savings bankscredit unions
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Business Finance© Thomson/South-Western
Chapter 8Slide 18
life insurance companiesinvestment companiesconsumer finance companiesmortgage companiescredit card companies
Non-Depository Financial Intermediaries
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Business Finance© Thomson/South-Western
Chapter 8Slide 19
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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Business Finance© Thomson/South-Western
Chapter 8Slide 20
Services OfferedSafetyConvenienceFees and ChargesRestrictions
Comparing Financial Institutions
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Business Finance© Thomson/South-Western
Chapter 8Slide 21
How do depository and non-depository financial intermediaries differ?
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Business Finance© Thomson/South-Western
Chapter 8Slide 22
Lesson 8.2
Financial Services
GoalsDescribe financial services commonly used by consumers.Identify types of commercial banking services.
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Business Finance© Thomson/South-Western
Chapter 8Slide 23
Terms
automatic teller machine (ATM)debit cardsafe-deposit boxtrustlock boxcommercial lending
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Business Finance© Thomson/South-Western
Chapter 8Slide 24
Consumer Services
There are five major categories of financial services.
They evolve continually.
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Business Finance© Thomson/South-Western
Chapter 8Slide 25
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Business Finance© Thomson/South-Western
Chapter 8Slide 26
ELECTRONIC BANKING
electronic funds transfer (EFT)the use of computers and other technology for banking activities
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Business Finance© Thomson/South-Western
Chapter 8Slide 27
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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Business Finance© Thomson/South-Western
Chapter 8Slide 28
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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Business Finance© Thomson/South-Western
Chapter 8Slide 29
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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Business Finance© Thomson/South-Western
Chapter 8Slide 30
SAVINGS SERVICES
Financial institutions accept money from customers for safekeeping.
savings accountscertificates of depositmoney market accountsretirement accounts
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Business Finance© Thomson/South-Western
Chapter 8Slide 31
PAYMENT SERVICESChecking Accounts
Consider the followingminimum balance requiredinterest ratemonthly service chargeother feesadditional services offered
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Business Finance© Thomson/South-Western
Chapter 8Slide 32
Most debit cards work in two ways.You sign a receipt.You provide your PIN.
Debit Cards
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Business Finance© Thomson/South-Western
Chapter 8Slide 33
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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Business Finance© Thomson/South-Western
Chapter 8Slide 34
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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Business Finance© Thomson/South-Western
Chapter 8Slide 35
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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Business Finance© Thomson/South-Western
Chapter 8Slide 36
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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Business Finance© Thomson/South-Western
Chapter 8Slide 37
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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Business Finance© Thomson/South-Western
Chapter 8Slide 38
What electronic banking services are commonly available for consumers?
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Business Finance© Thomson/South-Western
Chapter 8Slide 39
Commercial Banking
CASH MANAGEMENTCash Receipts
lock boxsecured postal box used to receive customer payments
Cash Paymentschecking accountelectronic payment systems
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Business Finance© Thomson/South-Western
Chapter 8Slide 40
BUSINESS LOANS
commercial lendingloans to businesses
Commercial Loan Purposesreal estateconstructionequipment needsoperations, inventory, or unplanned expenses
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Business Finance© Thomson/South-Western
Chapter 8Slide 41
term loansa line of creditcompany credit cardscontract financingbridge loansasset-based lending
Types of Commercial Loans
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Business Finance© Thomson/South-Western
Chapter 8Slide 42
BUSINESS ASSISTANCE
Information ServicesBanks often offer information to companies through personal contact or group seminars.
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Business Finance© Thomson/South-Western
Chapter 8Slide 43
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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Business Finance© Thomson/South-Western
Chapter 8Slide 44
What are the main commercial services offered by banks?
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Business Finance© Thomson/South-Western
Chapter 8Slide 45
Lesson 8.3
International Banking
GoalsDescribe the development of international banking activities.Identify organizations that assist with international finance activities.
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Business Finance© Thomson/South-Western
Chapter 8Slide 46
TermsWorld BankInternational Monetary Funddevelopment bank
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Business Finance© Thomson/South-Western
Chapter 8Slide 47
Global Banking Activities
EARLY INTERNATIONAL BANKINGAncient Civilizations
The Roman Empire developed banking innovations.
saving deposits receiptsloans
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Business Finance© Thomson/South-Western
Chapter 8Slide 48
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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Business Finance© Thomson/South-Western
Chapter 8Slide 49
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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Business Finance© Thomson/South-Western
Chapter 8Slide 50
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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Business Finance© Thomson/South-Western
Chapter 8Slide 51
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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Business Finance© Thomson/South-Western
Chapter 8Slide 52
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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Chapter 8Slide 53
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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Chapter 8Slide 54
What relationship exists between international trade and global banking activities?
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Chapter 8Slide 55
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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Chapter 8Slide 56
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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Chapter 8Slide 57
ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD)
The OECD has a commitment to democratic government and the market economy.
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Chapter 8Slide 58
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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Chapter 8Slide 60
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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Chapter 8Slide 61
What is the purpose of a regional development bank?
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Chapter 8Slide 62
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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Chapter 8Slide 63
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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Chapter 8Slide 64
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?