Chapter 8 Financial Institutions and Banking Services 8

Chapter 8 Financial Institutions and Banking Services 8. 1 BANKS AND OTHER FINANCIAL INSTITUTIONS 8. 2 FINANCIAL SERVICES 8. 3 INTERNATIONAL BANKING Business Finance © Thomson/South-Western

Chapter 8 Slide 2 Business Finance © Thomson/South-Western

Lesson 8. 1 Banks and Other Financial Institutions Goals n Describe the history and development of banking in the United States. n Explain the organization and activities of commercial banks and other financial institutions. Chapter 8 Slide 3 Business Finance © Thomson/South-Western

Terms n n Federal Reserve System reserve requirement discount rate open market operations Chapter 8 Slide 4 Business Finance © Thomson/South-Western

Banking Systems U. S. BANKING HISTORY n Federal Currency n In 1792, the Mint Act authorized gold and silver coins in a variety of denominations. n In 1861, paper money was first issued by the U. S. government. n Prior to 1861, banknotes were issued by individual banks. Chapter 8 Slide 5 Business Finance © Thomson/South-Western

n First and Second Banks of the U. S. n Bank of the United States n 1791 n 1816 n each lasted 20 years n state banks viewed these banks as a threat Chapter 8 Slide 6 Business Finance © Thomson/South-Western

n National Banking Act of 1864 n Comptroller of the Currency n chartered national banks n stabilized the value of U. S. banknotes n Federal Reserve Act n In 1913, Congress created the Federal Reserve System. Chapter 8 Slide 7 Business Finance © Thomson/South-Western

THE FEDERAL RESERVE SYSTEM n Federal Reserve System (Fed) n supervises and regulates member banks to help them serve the public efficiently n national banks are required to join n state banks may join Chapter 8 Slide 8 Business Finance © Thomson/South-Western

n Organizational Structure n member banks n banks that join the system n 12 federal reserve districts n a central Federal Reserve Bank in each district n Board of Governors n seven members n 14 -year term n Chair of Board of Governors n 4 -year term Chapter 8 Slide 9 Business Finance © Thomson/South-Western

Chapter 8 Slide 10 Business Finance © Thomson/South-Western

n Federal Reserve Activities n reserve requirement n the percentage of funds that a bank is required to hold n clearing checks n paying checks among different banks in different cities Chapter 8 Slide 11 Business Finance © Thomson/South-Western

n Monetary Policy n Setting Reserve Requirements n Changing the Discount Rate n discount rate n the rate the Fed charges on loans to member banks n Buying and Selling Government Securities n open market operations n the process of buying and selling government securities Chapter 8 Slide 12 Business Finance © Thomson/South-Western

OTHER BANK REGULATORY AGENCIES n Federal Deposit Insurance Corporation n provides a federal government guarantee of deposits n maintains stability and public confidence in the nation’s banks n insures up to $100, 000 per depositor, per bank Chapter 8 Slide 13 Business Finance © Thomson/South-Western

n Comptroller of the Currency n regulates national banks n examines the loans and investments of national banks n reviews the bank’s internal controls n evaluates abilities of bank’s management n decides whether to approve applications for changes in the bank’s structure n reviews rules and regulations regarding banking practices Chapter 8 Slide 14 Business Finance © Thomson/South-Western

n What are the main activities of the Federal Reserve System? Chapter 8 Slide 15 Business Finance © Thomson/South-Western

Timeline n Create a VISUAL timeline of US currency n Include dates, images, and brief description of time period. Chapter 8 Slide 16 Business Finance © Thomson/South-Western

Financial Institutions in Action BANKING DEPARTMENTS n Loan Department n reviews credit applications and approves loans n Personal Banking n services individuals and households Chapter 8 Slide 17 Business Finance © Thomson/South-Western

n Commercial Banking n services business clients n International Banking n works with companies that do business around the world n Trust Department n managing money on behalf of customers Chapter 8 Slide 18 Business Finance © Thomson/South-Western

Who says “going to the bank”? What does that mean? Chapter 8 Slide 19 Business Finance © Thomson/South-Western

FORMS OF FINANCIAL INSTITUTIONS n Depository Financial Intermediaries n store money n make loans to stimulate growth n commercial banks – widest range of services n savings and loans – savings accounts and mortgages n mutual savings banks – savings and mortgages, owned by depositors n credit unions – meet needs of owner customers Chapter 8 Slide 20 Business Finance © Thomson/South-Western

n Non-Depository Financial Intermediaries n life insurance companies – protection to dependents n investment companies – pooling funds to make investments with growth opportunities n consumer finance companies – loans to individuals looking for cards, appliances, etc. n mortgage companies – lending money for home buying n credit card companies – delay payment for purchases Chapter 8 Slide 21 Business Finance © Thomson/South-Western

n Changing Competitive Environment n financial supermarket n offers a complete range of services n Higher costs n Not covered by FDIC n all-in-one account n for a single fee, a variety of accounts are provided n online banking n 24/7 banking Chapter 8 Slide 22 Business Finance © Thomson/South-Western

What factors may impact your financial institution decisions? Chapter 8 Slide 23

n Comparing Financial Institutions n n n Services Offered Safety Convenience Fees and Charges Restrictions Chapter 8 Slide 24 Business Finance © Thomson/South-Western

Thinking Critically n Why do high-cost financial services exist? n Needs for services by people without access to other institutions or people are not informed about possible alternatives n What actions might be taken by consumers to avoid these high-cost financial services? n Money management counselors, bank or credit union, do some research Chapter 8 Slide 25 Business Finance © Thomson/South-Western

Lesson 8. 2 Financial Services Goals n Describe financial services commonly used by consumers. n Identify types of commercial banking services. Chapter 8 Slide 26 Business Finance © Thomson/South-Western

Terms n n n automatic teller machine (ATM) debit card safe-deposit box trust lock box commercial lending Chapter 8 Slide 27 Business Finance © Thomson/South-Western

Consumer Services n There are five major categories of financial services. n They evolve continually. Chapter 8 Slide 28 Business Finance © Thomson/South-Western

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ELECTRONIC BANKING n electronic funds transfer (EFT) n the use of computers and other technology for banking activities Chapter 8 Slide 30 Business Finance © Thomson/South-Western

n Automated Teller Machines n automated teller machine (ATM) (cash machine) n allows many banking services n debit card (cash card) n used for ATM transactions n using money that’s in your account n credit card n borrowing to pay later Chapter 8 Slide 31 Business Finance © Thomson/South-Western

n Point-of-Sale Payments n Merchants accept debit cards to pay for purchases. n Direct Deposit n Funds are deposited electronically and available automatically. n Automatic Bill Payments n By presetting amounts for monthly expenses, payments are made automatically. Chapter 8 Slide 32 Business Finance © Thomson/South-Western

n Online Banking n Technology developments have created a cyber-banking network. n Banking can be done anytime, anywhere. n cell phones n computers n Web-only banks n on-line n ATM access Chapter 8 Slide 33 Business Finance © Thomson/South-Western

What are some of the benefits and drawbacks of electronic and online banking? Chapter 8 Slide 34 Business Finance © Thomson/South-Western

SAVINGS SERVICES n Financial institutions accept money from customers for safekeeping. n n savings accounts certificates of deposit money market accounts retirement accounts Chapter 8 Slide 35 Business Finance © Thomson/South-Western

PAYMENT SERVICES n Checking Accounts n Consider the following n n n Chapter 8 Slide 36 minimum balance required interest rate monthly service charge other fees additional services offered Business Finance © Thomson/South-Western

n Debit Cards n Most debit cards work in two ways. n You sign a receipt. n You provide your PIN. Chapter 8 Slide 37 Business Finance © Thomson/South-Western

n Online Payments n Banks and Internet companies serve as third parties to facilitate online bill payments. n cybercash or e-cash services n create their own e-money that serves as a medium for exchange for online transactions Chapter 8 Slide 38 Business Finance © Thomson/South-Western

n Other Electronic Payment Methods n stored-value cards n prepaid cards for a variety of items n smart cards (electronic wallets) n an imbedded microchip can store prepaid amounts as well as information Chapter 8 Slide 39 Business Finance © Thomson/South-Western

Thinking Critically 1. What is biometric banking? 2. What concerns might be associated with biometric banking activities? 3. Do you support biometric banking? Explain your answer. Chapter 8 Slide 40 Business Finance © Thomson/South-Western

Which payment method will you likely use most often in the future? Chapter 8 Slide 41 Business Finance © Thomson/South-Western

LENDING SERVICES n Banks offer various types of lending services. n n auto and business loans mortgages credit cards Be wary of checks included with credit card statements. n the check amount is charged to the credit card n higher loan rate than other loans Chapter 8 Slide 42 Business Finance © Thomson/South-Western

OTHER FINANCIAL SERVICES n Storage of Valuables n safe-deposit boxes n Rented annually, these boxes are for the personal use of bank customers for storing valuable items. Chapter 8 Slide 43 Business Finance © Thomson/South-Western

n Investment Advice n financial advice n investment services n Management of Trusts n trust n a legal agreement for one party to control property for the benefit of another Chapter 8 Slide 44 Business Finance © Thomson/South-Western

n What electronic banking services are commonly available for consumers? Chapter 8 Slide 45 Business Finance © Thomson/South-Western

Commercial Banking CASH MANAGEMENT n Cash Receipts n lock box n secured postal box used to receive customer payments n Cash Payments n checking account n electronic payment systems Chapter 8 Slide 46 Business Finance © Thomson/South-Western

BUSINESS LOANS n commercial lending n loans to businesses n Commercial Loan Purposes n n real estate construction equipment needs operations, inventory, or unplanned expenses Chapter 8 Slide 47 Business Finance © Thomson/South-Western

n Types of Commercial Loans n n n Chapter 8 Slide 48 term loans a line of credit company credit cards contract financing bridge loans asset-based lending Business Finance © Thomson/South-Western

BUSINESS ASSISTANCE n Information Services n Banks often offer information to companies through personal contact or group seminars. Chapter 8 Slide 49 Business Finance © Thomson/South-Western

n Small Business Administration Programs n The SBA coordinates with banks to implement its loan programs. n often guarantees bank loans to small businesses Chapter 8 Slide 50 Business Finance © Thomson/South-Western

n What are the main commercial services offered by banks? Chapter 8 Slide 51 Business Finance © Thomson/South-Western

Lesson 8. 3 International Banking Goals n Describe the development of international banking activities. n Identify organizations that assist with international finance activities. Chapter 8 Slide 52 Business Finance © Thomson/South-Western

Terms n World Bank n International Monetary Fund n development bank Chapter 8 Slide 53 Business Finance © Thomson/South-Western

Global Banking Activities EARLY INTERNATIONAL BANKING n Ancient Civilizations n The Roman Empire developed banking innovations. n saving deposits receipts n loans Chapter 8 Slide 54 Business Finance © Thomson/South-Western

n European Developments n The Bank of Barcelona was one of the first enterprises to offer an array of banking services. n The Bank of France, which had a strong financial influence in Europe, was started in 1800. Chapter 8 Slide 55 Business Finance © Thomson/South-Western

INTERNATIONAL TRADE AND BANKING n The International Banking Act passed in 1978. n requires foreign banks operating in the U. S. to operate under federal banking regulations n Deposit insurance is required to do business in the U. S. Chapter 8 Slide 56 Business Finance © Thomson/South-Western

n Increased international banking activity has resulted in more standardized regulations across borders. n Recently, over 100 countries agreed to a global standard for evaluating the financial stability of banks. Chapter 8 Slide 57 Business Finance © Thomson/South-Western

n Africa n Cell phones in South Africa help workers compensate for the lack of convenient availability of banks. n Asia n The currency crisis of the late 1990 s caused major banks to downsize their scope. n In some parts of Asia, informal banking still takes place. Chapter 8 Slide 58 Business Finance © Thomson/South-Western

n Europe n Conflicting banking regulation in various countries reduce the opportunity for standardization. n The euro has not been adopted uniformly. n Latin America n Brazil has three major banks. n Brazilians usually pay bills at banks. n Internet payments are gaining popularity in Brazil. Chapter 8 Slide 59 Business Finance © Thomson/South-Western

n Middle East n The Saudi Arabian Monetary Agency was established in 1952. n maintains a stable currency value n regulates various financial institutions n handles payments of government funds Chapter 8 Slide 60 Business Finance © Thomson/South-Western

n What relationship exists between international trade and global banking activities? Chapter 8 Slide 61 Business Finance © Thomson/South-Western

Global Financial Organizations WORLD BANK n world bank n created in 1944 to provide loans for rebuilding after WWII n now provides economic assistance to lessdeveloped countries Chapter 8 Slide 62 Business Finance © Thomson/South-Western

INTERNATIONAL MONETARY FUND n International Monetary Fund (IMF) n helps promote economic cooperation by maintaining an orderly system of international trade and exchange rates n Three main duties of the IMF are: n Analyze Economic Situations n Suggest Economic Policies n Provide Loans Chapter 8 Slide 63 Business Finance © Thomson/South-Western

Good or Bad? Business Finance © Thomson/South-Western

ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD) n The OECD has a commitment to democratic government and the market economy. Chapter 8 Slide 65 Business Finance © Thomson/South-Western

REGIONAL DEVELOPMENT BANKS n development bank n an organization of several countries created to provide financing for economic development to countries in a region Chapter 8 Slide 66 Business Finance © Thomson/South-Western

n Inter-American Development Bank (IDB) n provides funds and technical assistance programs to enhance economic and social development n Asian Development Bank n strives to improve the quality of life for people in Asia and the Pacific Chapter 8 Slide 67 Business Finance © Thomson/South-Western

n African Development Bank n dedicated to reducing poverty and improving the lives of people in Africa n Other Regional Development Banks n A variety of regional development banks seek to reduce poverty and expand economic activities. Chapter 8 Slide 68 Business Finance © Thomson/South-Western

n What is the purpose of a regional development bank? Chapter 8 Slide 69 Business Finance © Thomson/South-Western

Performance Indicators Evaluated n Explain the importance of an advertising campaign. n Define an effective advertising campaign for an actual business. n Determine the needs of the target market when creating an advertising campaign. Chapter 8 Slide 70 Business Finance © Thomson/South-Western

n Communicate a schedule of events for an advertising campaign. n Describe special promotions for the advertising campaign. n Define the benefits the advertising campaign provides the business. n Deliver an effective oral presentation that indicates self-confidence. Chapter 8 Slide 71 Business Finance © Thomson/South-Western

Think Critically 1. Why have banks become more dependent on advertising campaigns? 2. Why are banks using humorous commercials as part of their advertising campaigns? Chapter 8 Slide 72 Business Finance © Thomson/South-Western

3. What has competition in the banking industry done to promotions offered by banks? 4. Give two examples of promotions that banks can offer potential customers. Chapter 8 Slide 73 Business Finance © Thomson/South-Western