Banking Today
Presented by Stacy Cox
BANKING BASICS
Objectives
 Describe the purpose of a bank
 Compare and contrast different types of
banks
 Explain the effect technology has had on
modern banking
What Is A Bank?
 A bank is a type of financial institution
 A financial institution is any organization that
provides services related to money
Services Provided by Banks
Deposits
• Savings
accounts
• Checking
accounts
• Money Market
accounts
• Certificates of
deposit
• Retirement
accounts
Loans
•
•
•
•
•
Car loans
Home loans
Student loans
Business loans
Credit cards
Other Services
•
•
•
•
Insurance
Investments
Trust services
Safe deposit
boxes
• Money
transfers
What Is A Bank?
 Banks are organizations that handle money
but also includes:
 Protecting money
 Lending money
 Issuing money
 Sending money from one place to another
 Keeping track of money
 Helping customers get more money
 Helping businesses find money
What Is A Bank?
 Banks handle money and most make
money…for profit banks are expected to
make a profit for their owners (individuals,
groups, or stockholders)
 Lending money at a higher interest rate than they
pay depositors
 Providing services such as safe deposit boxes
 Charging fees of various kinds
What Is A Bank?
 Banks are highly regulated by local, state,
federal and international agencies
 To open a bank you have to have a document
called a charter…details how the bank will be
operated and regulated
 Charters are issued by state and federal
governments
What Is A Bank?
 What makes a bank a bank?
 They are depository institutions…customers give
money to it (deposit) and then come back for their
money later (withdrawal)
Banks lend
money that
customers
deposit
Charge interest
to the borrower
Pay interest to
the depositor
 No bank keeps 100% of it’s deposits, but must keep
reserves on hand…a percentage of a bank’s funds
that must be held separately to ensure that the
money will be available when customers want to
withdrawal
What Is A Bank?
 Credit union cooperatives and savings
associates are not-for-profit depository
institutions
 Offer similar services as banks but instead of
making a profit for it’s owners, they return the
profits to members in the form of lower rates and
fees
Types of Banks
 Retail banks – provide services for customers
 Deposit accounts, mortgage, auto, and personal
loans as well as credit cards
 Internet banks – type of retail bank that has
no physical location or building
 Customers have access from anywhere and
sometimes these banks pay higher rates on
deposits because they do not have the expense of
maintaining physical locations
Types of Banks
 Commercial bank – focuses on business
customers, providing bank accounts and
specialized services such as foreign exchange,
investment services, and capital loans
 May have limited personal checking and savings
accounts
 Money center banks – very large, often
international banks whose primary customers
are businesses, other banks, and
governments
Types of Banks
 After the stock market crash in 1929
regulations stated that banks were prohibited
from providing investment services and
banks…had to choose one or the other and so
Investment banks were created
 Help companies prepare to become publicly
traded companies
 After 1999, banks were allowed to provide
both kinds of services
Types of Banks
 Governments establish central banks to help
stabilize a country’s money system
 In 1919 the Federal Reserve System was
established
 A central bank, which is part of the Federal
Reserve System, oversees a country’s banking
system
 Central banks lend money when commercial
banks are not able, regulate banks, and control
the money supply
Who Owns the Bank?
 In some countries, when owned by the
government it is called nationalization
 In the US banks are owned by corporations or
individuals, but federal and state regulations
have an effect on a bank’s operations
Where Do Banks Operate?
 May be classified by how large of an area in
which they operate
 Unit banks – bank with one location; found in
small towns or rural areas
 Regional banks or interstate banks – banks that
branch across a state or a few states in the same
region
 Specialize in retail banking and do not operate
internationally
 National banks – have offices across the country
 Bank of America and Wells Fargo are examples
Technology’s Transformation of
Banking
 You can now do banking at a machine, from
your computer, or even your mobile phone
 Automated teller machines (ATMs) – provide
a means for self service banking
 Most banks do not charge a fee for their
customers but they do impose a fee for those who
are customers of another bank…another source of
income for banks
 ATMs can be owned by a bank or private company
Banking Functions Available
Through an ATM
Making Cash
Withdrawals
Checking Account
Balances
• Original purpose of
the ATM
• Amount of
withdrawals per day is
limited
• Most popular ATM
service
• View a balance even
when the bank is not
open
Making Deposits
• Check or cash can be
deposited
• Checks and currency
are scanned by the
ATM
• Funds deposited
through ATMS may
not be immediately
available
Online Banking
 Online banking – also known as home
banking, allows customers to conduct
financial transaction on a secure website
 Most banks offer some form of online banking
 Two types of online banking programs—
transactional and non-transactional
Online Banking
 Transactional online banking allows customers
to perform common functions





Transferring funds
Paying bills
Applying for loans
Purchasing or selling securities
Peer-to-peer payments (P2P) – immediate money
transfer from one person to another…all you have to
know is their email or cell phone number to send a
virtual check
 PayPal is an example
Online Banking
 Non-transactional online banking is the
ability to review information rather than
make a transaction
 Viewing checking account balances
 Viewing recent transactions
 Downloading bank statements
 Seeing and printing images of paid checks
Mobile Banking
Mobile Phone Deposit
Apps
Text Banking
Bill Payments
ATM Locators
P2P payments
In-store payments
• Use the camera on a Smartphone to take a picture of the
front and back of a check
• Receive deposit confirmation
• Use text messaging to find out the balance
• Set up automatic text alerts
• Pay bills
• Find the nearest ATM or banking center
• Make an instant payment to someone
• Make a purchase by waving a Smartphone at a specialty
equipped device; the payment is taken directly from the
bank account…like a debit card
Banks and the Economy
Presented by Stacy Cox
BANKING BASICS
Objectives
 Describe the economic functions of banks
 Explain a bank’s safekeeping function
 Explain how credit is essential to a country’s
economy
 Define the bank’s role as a financial
intermediary
 Discuss why fast and certain access to funds
are keys to a banking system.
Economic Functions of Banks
 With the help of technology, banks are able to
offer a variety of services:
 Safekeeping services that protect our money
 Deposit services that let our money grow
 Loan services that allow us to borrow money
 Allows borrowers, savers, buyers, and sellers to
be able to successfully transact their business
 Financial transactions are essential to economic
growth
 Banking expands the economy, provides jobs,
income, investment returns, and tax revenues
Keeping Money Safe
 Our economy functions efficiently because
our banking system give us the confidence
that our money is safe
 Where do you keep your money? Wallet,
backpack, or bedroom…but the bulk is
probably kept in a bank because we want that
security
 Banks provide physical security and federal
deposit insurance protects our money in the
event of a bank failure
Keeping Money Safe
 We rely on banks to keep accurate records of
our accounts…trail of business transactions
 Most of our transactions occur not with actual
currency but through checks, ATMs, and
debit cards (also known as a check card,
allows bank customers to withdraw cash to
pay for goods and services in stores or online)
Keeping Money Safe
 Banks are physically safe…
 Surveillance equipment and security systems
 Nearly indestructible vaults with alarm systems and
antitheft devices
 Teller windows have bulletproof glass and other safety
features
 Protection against internal theft as well…
 Tellers and other employees must go through
background checks
 Daily checks on cash drawers and vaults, as well as
audits and internal controls
Keeping Money Safe
 If a robbery does occur…
 Banks are protected by insurance they purchase
called banker’s blanket bond (protects against
robberies or employee theft)
 In the case of bank failure…
 The Federal Deposit Insurance Corporation
(FDIC) insures each depositor up to $250,000
Extending Credit
 Banks are the major lenders in our economy
 Car or house loan
 Businesses borrow to purchase materials or
equipment or expand their markets
 Interest from loans is the main source of revenue
for most banks
 Without banks extending credit, borrowers
suffer, as well as the economy
Loan Cycle
Bank uses
deposits to
make a car loan
to customer
TV store
deposits
money into
bank account
Car salesman
buys new TV
with the money
received
Customer uses
loan to buy car
from car dealer
Car dealer pays
car salesman
after sale of car
Financial Intermediary
 A major function of a bank is to act as a
financial intermediary…an institution that
acts as a go-between in financial transactions
 Financial intermediary facilitates transactions
between the savers and borrows
 Example: savers need a place to put their
savings…banks can meet that need while
borrowers need someone to lend them money.
Banks use money from the savers to loan to the
borrowers. Banks accept the risk of the loan not
being repaid
Transferring Funds
 Our economy is fast-paced…without the
transfer and payment systems provided by
banks, our economy would slow down to a
crawl
 Electronic funds transfer (EFT) is the
electronic exchange of money from one
account to another through computer-based
systems…debit cards and ATMs
Transferring Funds
 Automated clearinghouses (ACHs) are
electronic networks for financial transactions
 ACHs process credit and debit transactions and
transfer funds from bank to bank.
 There are several ACHs in the US, with the Federal
Reserve Bank being the largest, handling about
60% of the ACH transactions