Chapter 5: Banking & Financial Institution Flashcards
is a company engaged in the business of dealing with
financial and monetary transactions such as deposits,
loans, investments, and currency exchange.
Financial institutions
encompass a broad range of business operations
within the financial services sector including banks, trust companies, insurance companies, brokerage firms, and investment dealers.
Financial institutions
serve most people in some way, as financial operations are a critical part of any economy, with individuals and companies relying on financial institutions for transactions and investing.
Financial institutions
True or False
Governments do not consider it imperative to oversee and regulate banks and financial institutions because they do play such an integral part in the economy.
False
True or False
Historically, bankruptcies of financial institutions can create panic.
True
WHAT ARE THE 10 MAJOR TYPES OF FINANCIAL INSTITUTIONS?
- Central Banks
- Retail Banks
- Commercial Banks
- Internet Banks
- Credit Unions
- Savings Association
- Loan Association
- Investment Banks
- Brokerage Firms
- Insurance Companies
are the financial institutions responsible for the oversight and management of all other banks.
Central Banks
offered products to individual consumers
Retail Banks
worked directly with businesses
Commercial Banks
Products offered at ______________________include checking and savings accounts, certificates of deposit (CDs), personal and mortgage loans, credit cards, and business banking accounts.
retail and commercial banks
A newer entrant to the financial institution market is _______________, which work similarly to retail banks.
internet banks
________________ offer the same products and services as conventional banks, but they do so through online platforms instead of brick-and-mortar locations.
Internet banks
Under internet banks, there are two categories:
- Digital banks
- Neo-banks
are online-only platforms affiliated with traditional banks.
Digital banks
are pure digital native banks with no affiliation to any bank but themselves.
neobanks
is a type of financial institution providing traditional banking services and is created, owned, and operated by its members.
Credit unions
usually serve a specific demographic per their field of membership, such as teachers or members of the military. Some also open their membership to the general public.
Credit unions
Financial institutions that are mutually owned by their customers and provide no more than 20% of total lending to businesses
savings and loan associations
They provide individual consumers with checking and savings accounts, personal loans, and home mortgages.
savings and loan associations
are financial institutions that provide services and act as an intermediary in complex transactions, for instance, when a startup is preparing for an initial public offering (IPO), or in merges.
Investment banks
They can also act as a broker or financial adviser for large institutional clients such as pension funds.
Investment banks
assist individuals and institutions in buying and selling securities among available investors.
Brokerage firms
Customers of ______________ can place trades of stocks, bonds, mutual funds, exchange-traded funds (ETFs), and some alternative investments.
brokerage firms
Financial institutions that help individuals transfer the risk of loss are known as __________________.
insurance companies
Individuals and businesses use _____________ to protect against financial loss due to death, disability, accidents, property damage, and other misfortunes.
insurance companies
Financial institutions specialized in originating or funding mortgage loans are ____________.
mortgage companies
While most _______________ serve the individual consumer market, some specialize in lending options for commercial real estate only.
mortgage companies
is a financial institution that is licensed to accept checking and savings deposits and make loans.
Banks
_________ also provide related services such as individual retirement accounts (IRAs), certificates of deposit (CDs), currency exchange, and safe deposit boxes.
Banks
banks are regulated by the _______________________.
national government or central bank
are deposits used by consumers and businesses to pay their bills and make cash withdrawals.
Checking accounts
They pay little or no interest and typically come with monthly fees, usage fees, or both.
Checking accounts
pay interest to the depositor
Savings Accounts
True or false
The CDs can earn interest for as little as a few months or as long as five years or more.
True
True or False
The cash that is deposited by their customers is lent out to other customers at a higher rate of interest than the depositor is paid.
True
are a form of government regulation that subjects banks to certain requirements, restrictions, and guidelines.
banking regulations
In general, ____________ seek to uphold the soundness and integrity of the financial system.
banking regulations
True or False
Banks came under intense scrutiny after a few financial crises. The regulatory environment for banks was tightened considerably as a result.
True
Most common regulation objectives are:
- Prudential
- Systematic risk reduction
- Avoid the misuse of banks
- To protect banking confidentiality
- Credit allocation
______________ to reduce the level of risk bank creditors are exposed to (i.e. to protect depositors)
Prudential
_______________ to reduce the risk of disruption resulting from adverse trading conditions for banks causing multiple or major bank failures
Systemic risk reduction
___________________ to reduce the risk of banks being used for criminal purposes (e.g. laundering the proceeds of crime)
Avoid the misuse of banks
_____________ to direct credit to favored sectors
Credit allocation
True or False
Banks offer various ways to stash your cash and various ways to borrow money.
True
True or False
People deposit their money in banks;
the bank lends the money out in car loans, credit cards, mortgages, and business loans.
True
