17.1 Banks and Other Financial Institutions Flashcards
Describe pawn shops.
- make loans based on the value of some tangible object, such as jewelry or other valuable items
- commonly charge higher fees than other financial institutions
- these places should be avoided
Describe check-cashing outlets (CCO).
- people who do not have bank accounts may use these places to cash paychecks and to obtain other financial services
- offer a wide range of services such as electronic tax filing, money orders, private postal boxes, utility bill payment, the sale of bus and subway tokens
- these services are more expensive here than at other businesses
How are deposits made to banks put to work?
- deposits do not remain idle in bank vaults
- they are put to work
- when people deposit money in a bank, you are helping to create jobs and economic growth that benefit your community and your society
Banks operate as a business, what do banks sell?
they sell services such as checking and payment accounts, savings accounts, loans and investments
What are some types of non-deposit institutions?
- life insurance companies
- investment companies
- consumer finance companies
- mortgage companies
- check cashing outlets
- pawnshops
the _____ you and others deposit make banking services possible
the savings you and others deposit make banking services possible
the process of paying checks and other payments among different banks
clearing
Describe what it means that one service provided by the Fed is the holding of reserves.
just read
- banks are not allowed to lend all the money they receive from customers
- they are required to keep part of the money deposited by customers on deposit with the Federal Reserve System
- the Fed holds these deposits in case the banks need additional funds to meet the daily customer demand
- because of this a bank will only lend a certain percentage of deposited funds and keeps the rest in reserve
- this rule helps the economy operate efficiently and protects the customer’s deposits
- example - let’s say you deposit $1000 into the bank and the bank then lends all that money to someone else. you decide to go into the bank to withdraw your $1000 but they don’t have it anymore because they lent everything. that would cause a big problem and you wouldn’t have your money.
what is the most common way for a bank to be organized?
as a commercial bank
aka full service bank
Describe what it means that another service of the Fed is clearing checks for member banks.
just read
- clearing refers to the process of paying checks and other payments among different banks
- the fed electronically processes millions of payments each day, making sure that the correct amounts are added to and subtracted from the appropriate account
What Federal Reserve District is Pennsylvania in?
federal #3
Describe life insurance companies.
- place to buy life insurance
- also offer financial services such as investments
- through careful investing in new and existing companies, these companies help to expand business in the economy
What are the primary differences between a bank and credit union?
- credit unions serve members only, are not for profit, and user owned
- banks make profits
- have to be part of a group for credit unions but not for a bank
Describe investment companies.
- people choose investment opportunities for long term growth of their money through investment companies
- investors own shares of one of the more than 60,000 mutual funds available
- these companies make the mutual funds available
What should you think about when comparison shopping for your financial services dollar?
- services offered
- safety
- convenience
- fees and charges
- restrictions
What are some types of deposit institutions?
- commercial banks
- savings and loan associations
- mutual savings banks
- credit unions
a business that specializes in making loans for long lasting or durable goods, such as cars and refrigerators, and for financial emergencies
consumer finance companies
Describe 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
- because they make loans, they are part of the financial services industry
- unlike banks and other financial institutions, consumer finance companies do not accept savings deposits
What are the 5 Federal Reserve activities?
- the holding of reserves
- clearing of checks
- control amount of currency made and destroyed - if we have too much of a certain dollar then Fed will destroy some currency
- distribute currency to various districts
- set prime rate and interest rates - this stimulates economic growth
Is a bank considered a business?
yes, it sells services, it’s goal is to make a profit
Why was the first bank created?
was created to relieve the war debt of the US Revolutionary War, to develop national currency and to dispose of the western territories
Why did the federal government set up the Federal Reserve System (Fed)?
to supervise and regulate member banks and to help banks serve the public efficiently
Describe credit unions.
- a user owned, not for profit, cooperative financial instituion
- people in the same company, government agency, labor union or profession often form credit unions
- serve members only - people become a member when they deposit money in the credit union because deposits are considered partial ownership in the credit union
- offer a wide range of financial services
the federal agency that helps to regulate banks and other financial institutions
Federal Deposit Insurance Corporation (FDIC)
do not take or hold deposits, they earn their money selling specific services or policies
non-deposit institutions
aka non-depository intermediaries
How has the banking industry changed since the first bank?
offer a much wider range or products
What kinds of serivces do commerical banks offer?
offer:
- checking accounts
- provide savings accounts
- make loans to individuals and businesses
- also called full service banks because they offer a wide range of financial services
- in large banks different departments handle the different services
- have a loan department
- have a trust department
- a real estate department
- an investment department
What is the largest denomination of currency currenty in circulation?
$100
can an individual open an account at the Federal Reserve Bank?
no because it’s a bank for banks
What are some activities that individuals, businesses and governments 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
Describe a mutual savings bank.
- a savings bank that is owned by, and operated for the benefit of, its depositors
- the profits are distributed in proportion to the amount of business each participant does with the company
- provides a variety of services but is mainly for savings and home loans
- these kinds of banks are located mainly in the northeastern US
Who is the National Credit Union Administration (NCUA)?
a federal agency that regulates credit unions
The United States is divided into ____ Federal Reserve districts, with a central Federal Reserve Bank in each district
The US is dividied into 12 Federal Reserve districts, with a central Federal Reserve Bank in each district
What does the National Credit Union Administration (NCUA)?
- it regulates credit unions
- it insures a depositor’s funds through the National Credit Union Share Insurance Fund
Why are banks regulated more strictly than most other businesses?
because if another business fails only some people lose money but if a bank fails then thousands of people lose money or are affected
If deposit insurance is most important to you when selecting a financial institution, you are most concerned with
- safety
- convenience
- services
- fees
safety
What are the 4 basic types of banking services you will use?
- savings accounts
- checking and payments accounts
- loans and other credit plans
- other services, such as safe deposit boxes and investment advice
What are the 4 things you should look for when selecting a bank? Describe each.
- Safety:
- is it FDIC or NCUA insured?
- Convenience:
- does it have online banking, branch offices near you?
- sometimes convenience means higher costs
- in recent years online banking has resulted in lower costs for many consumers
- Fees and Charges:
- financial services have costs
- do they charge ATM fees, a fee for checking acounts?
- Restrictions:
- might have to keep a certain balance in your account to get ‘free’ checking
- do you have to have your money in your account for a certain time before earning interest?
Who began the first bank? Where? When?
Alexander Hamilton in 1791 in Philadelphia
What called the First Bank and modeled after the Bank of England
accept deposits from people and businesses and use them to finance their business
deposit institutions
aka depository intermediaries
What are the two major categories of fianancial institutions?
- deposit institutions
- non deposit institutions
What are banks that join the Fed known as?
member banks
provide loans for buying a home or other real estate
mortgage companies
What is the largest denomination of currency ever printed?
$100,000
All _____ banks are required to join the Federal Reserve System
all national banks are required to join the Federal Reserve System
What is the most popular type of financial institute?
commercial bank
Who heads the Fed?
- Janet Yellen is the current Chair of the Board of Governors of the Federal Reserve System
- she is considered one of the most powerful people in the world because she controls inflation / deflation and controls interest rates, which controls economy
Describe a savings and loan association (S&L).
- before the 1980s they specialized in savings accounts and making loans for home mortgages only
- after the 1980s they were allowed to offer other services and are more like banks
- many use the words ‘savings bank’ in their name
The financial institution most likely to charge the highest rate for a loan would be a:
- bank
- pawnshop
- credit union
- mortgage company
pawnshop
What does the Federal Deposit Insurance Corporation (FDIC) do?
- it protects depositors’ money in case of the failure of a bank or financial institution that it regulates
- it insures all accounts in the same name at each bank up to $250,000
- is a government agency but banks provide the money for its operation
- almost 99% of all banks are FDIC members
- most banks and financial institutions have federal deposit insurance but not all do so do not assume they do - make sure the institution where you keep your savings is insured
makes loans based on the value of some tangible object, like jewelry or other valuable items
pawnshops
federal government agency set up to supervise and regulate member banks and to help banks serve the public efficiently
Federal Reserve System (Fed)
the most common way for a bank to be organized, offer a wide range of financial services
commercial bank
a user owned, not for profit, cooperative financial institution
credit union
