Money and Banking

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Money and Banking

• Economics
• Chapter 10
• Section 2 3 Notes

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Financial Institutions in the United States

• Type 1 Commercial Banks
• Privately owned commercial banks are oldest type
  of banks
• initially created to provide business loans
• today, checking and savings accounts, loans,
  investments, credit cards
• All national, about 16 percent of state
  commercial banks belong to the Fed

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Financial Institutions in the United States

• Type 2 Savings Institutions
• SLs first chartered by states in 1830s
• took savings deposits provided home mortgage
  loans
• today, provide many of same services as
  commercial banks
• Since 1933, federal government also charters SLs
• many federally chartered SLs call selves savings
  banks

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Financial Institutions in the United States

• Type 3 Credit Unions
• In 1909, first credit union chartered 1934,
  federal system created
• offer savings and checking accounts specialize
  in auto, mortgage loans
• deposits insured by National Credit Union
  Association (NCUA)
• Credit unions have membership requirements
• cooperatives nonprofit organizations owned by,
  operated for members

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Section 3 Innovations in Modern Banking
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What Services Do Banks Provide?

• Service 1 Customers Can Store Money
• Banks store currency in vaults insured against
  theft, other loss
• Customers also store
• money in bank accounts insured against bank
  failure
• papers and valuables in safe deposit boxes

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What Services Do Banks Provide?

• Service 2 Customers Can Earn Money
• Savings accounts, some checking accounts pay
  interest
• Money market accounts, CDs pay higher interest
  rate

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What Services Do Banks Provide?

• Service 3 Customers Can Borrow Money
• Banks lend money through fractional reserve
  banking
• percent of deposit banks must keep is set by Fed
• Banks make loans to customers it approves
• loans have set time period and interest rate
  property is collateral
• Credit card purchases are loans interest charged
  after one month

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Banking Deregulation

• Bank Mergers
• Deregulation led to mergers no more restrictions
  on interstate banking
• Advantages more competition meant low interest
  rates, more services
• also more branches economies of scale,
  especially for technology
• Disadvantages fewer banks to choose from
• fear larger banks uninterested in small
  customers, local communities

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Banking Deregulation

• Banking Services
• Financial Services Act of 1999 lifted last
  restriction on banks
• Banks, insurance companies, investment companies
  compete
• sell stocks, bonds, insurance, traditional
  banking services
• Customers continue to use different companies for
  different services