The Evolution of Banking Banking and Financial Services Finance Lesson
LessonPlan
PlanPlan
Performance Objective Students will understand the roles of banking past and present. Specific Objectives  Students will understand the purposes of the Federal Reserve Bank.  Students will understand the forms and functions of money and other mediums of exchange. Terms  Reserve liquidity‐ the ease of converting reserves in a bank to cash  Margin‐ the practice of buying stocks with part or all of the money being borrowed  Run on the bank‐ when large numbers of bank customers try to withdraw their deposits from a bank; banks only hold a small percentage of deposits on hand so there will not ever be enough cash on hand to reimburse all of a bank’s customers  FDIC‐ Federal Deposit Insurance Corporation  World Bank‐ an organization established in 1944 to help reduce poverty and support development in its member countries  Spread‐ in simple terms, the difference between the interest banks charge borrowers for loans and the interest it pays customers on interest‐bearing accounts  Reserves‐ the percent of money the Federal Reserve requires banks to keep on hand  Discount rate‐ the rate the Federal Reserve charges to its member banks that borrow money  Buying on margin‐ buying an asset with borrowed funds from a broker Time When taught as written, this lesson should take approximately five to six class periods to complete. Preparation
TEKS Correlations This lesson, as published, correlates to the following TEKS. Any changes/alterations to the activities may result in the elimination of any or all of the TEKS listed. 130.163 (c) Knowledge and Skills The student evaluates the role of banking in the modern economy. The student is expected to: (A) outline the evolution of money and banking in the United States economy; (B) explain the operation of the Federal Reserve Bank and its role in the economy; (C) outline and analyze the history and the impact of the use of the gold or silver standard in monetary policy; (D) discuss the role of the World Bank Group in international financial assistance; and Copyright © Texas Education Agency, 2103. All rights reserved. 1 (E) explain the nature of government agencies that provide financing to businesses such as Export‐Import Bank of the United States and Small Business Administration. Interdisciplinary Correlations: English‐English I  110.31(b)(1) understand new vocabulary and use it when reading and writing  110.32(b)(11) understand how to glean and use information in procedural texts and documents  110.31(b)(11)(B) analyze factual, quantitative, or technical data presented in multiple graphical sources Occupational Correlation (O*Net – www.onetonline.org/) Job Title: Financial Examiners O*Net Number: 13‐2061.00 Reported Job Titles: Community Reinvestment Act Officer (CRA Officer), Credit Union Examiner, Senior Examiner Tasks  Review balance sheets, operating income and expense accounts, and loan documentation to confirm institution assets and liabilities.  Direct and participate in formal and informal meetings with bank directors, trustees, senior management, counsels, outside accountants and consultants to gather information and discuss findings.  Review applications for mergers, acquisitions, establishment of new institutions, acceptance in Federal Reserve System, or registration of securities sales to determine their public interest value and conformance to regulations, and recommend acceptance or rejection. Soft Skills  Judgment and Decision Making  Coordination  Critical Thinking Accommodations for Learning Differences It is important that lessons accommodate the needs of every learner. These lessons may be modified to accommodate your students with learning differences by referring to the files found on the Special Populations page of this website. Preparation  Review and familiarize yourself with the terminology and website links.  Review the lesson content and presentation slides. References  Center for Financial Training. (2003). Banking and Financial Systems. Independence, KY: Cengage Learning.  http://www.federalreserve.gov/pf/pdf/pf_7.pdf Copyright © Texas Education Agency, 2103. All rights reserved. 2 
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http://www.newmoney.gov/education/default.htm http://web.worldbank.org http://business.ftc.gov/privacy‐and‐security/gramm‐leach‐bliley‐act http://www.exim.gov/ http://www.sba.gov/about‐sba‐services/what‐we‐do http://www.fdic.gov http://www.philadelphiafed.org http://web.mit.edu/urbanupgrading/upgrading/resources/organizations/world‐bank.html www.federalreserveeducation.org/resources/fedtoday http://www.federalreserveeducation.org/resources/detail.cfm?r_id=c49d48c4‐15ef‐4b15‐8568‐
49348876be13 Instructional Aids  Lesson Presentation  Instructor Computer/Projection Unit  Online Websites Introduction
The main purposes of this lesson are to help students understand the following concepts:  The functions and changes in money over time  The significance of the Federal Reserve in our economy  How various organization provide financial assistance to businesses  Ask students if they know what was used for money before we used paper currency.  Ask students if they know what the Federal Reserve is and what it does for the banking industry.  Ask students if they know how our banking system can help communities in foreign countries. Copyright © Texas Education Agency, 2103. All rights reserved. 3 Outline
I. II. What is Money? A. A medium of exchange 1. Anything of value 2. Can be exchanged to purchase a product or service B. Historical forms of “money” 1. Salt, as in Roman times 2. Shells, as in seaside villages 3. Gold, silver 4. The Euro, for European member countries 5. Currency 6. Anything that has value to someone else and can be traded, or bartered Metal Standards of Money A. Both gold and silver B. Silver standard‐ around the 1800s but worth less than gold C. Gold standard‐ around 1900 1. Gold Standard Act of 1900‐ fixed the price for currency with gold 2. 1933‐ privately‐owned gold outlawed by FDR 3. 1946‐ Bretton Woods System set gold at $35/ounce 4. 1971‐ Nixon ended fixed trading price of gold Ask students what they used for money when they were younger and wanted to buy something from a friend. They probably traded an object with a friend and that seemed to satisfy a need. Discuss the value of metal today, even if it is not used for currency. Conduct online research with the students to see the current value of silver and gold per ounce. Discuss the Euro and the benefits of having a common currency. Also, conduct online research to determine the value of other country’s currency compared to the U. S. dollar. III. Currency Over the Years A. Coins (metal currency) 1. Pounds and shillings during colonial times 2. The “real,” a Spanish dollar; had higher silver content Multiple Intelligences Guide
Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Copyright © Texas Education Agency, 2103. All rights reserved. 4 Verbal/Linguistic Visual/Spatial B. C. Paper certificates 1. During Revolutionary War 2. Not quite trusted Mint Act of 1792‐ authorized gold, silver, and copper coins D. 1861‐ paper money printed by the U.S. Government E. National Currency Act of 1863 1. Became the National Banking Act of 1864 2. Established standards for currency 3. Established a national currency IV. Main Purposes of Banking A. Making money through “spread” 1. Difference between the interest rate a depositor would earn versus the rate a borrower would pay 2. Short‐term deposit rates are less than long‐term rates 3. Short‐term loan rates are usually higher than long‐term rates B. Safeguarding customers’ money 1. Increases customer confidence 2. Promoted through Federal Reserve and FDIC V. National Banking Act of 1864 A. Created a national currency and a reserve system among banks B. Banks borrow from other banks’ reserves C. Created uncertainty with the system due to “reserve liquidity” D. 1913‐ Federal Reserve Act that created a formal central banking system Point out to students that the important difference between the currency we use today and the metal standards of the past is in the determination of value. Our currency today has a stated value so there is no disagreement about worth. Regardless of the type of currency an economy uses, banks have always been in business to make money and to keep customers’ money safe. The biggest way banks make profit is through the “spread” or, simply put, the difference between interest paid to customers and interest charged to borrowers. There is more to it, but that is the common spread. Banks also make money through fees. Perform a few math calculations to demonstrate to students how much money a bank can make on checking accounts if say, 5000 customers, pay a $10 service fee per month. Then estimate interest that a customer pays for a $20,000 car loan at 10%, multiplied by 500 customers. Emphasize that these are very simple and underestimated calculations, but merely a demonstration. Multiple Intelligences Guide
Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Copyright © Texas Education Agency, 2103. All rights reserved. 5 Verbal/Linguistic Visual/Spatial VI. A Banking Timeline – 1791‐1836 A. The First Bank of the U. S. 1. Chartered in 1791 at the urging of Alexander Hamilton 2. Privately owned 3. Bank notes of this bank were the most common currency 4. Westward expansion led to distrust of Eastern bankers 5. 1811‐ charter expired and not renewed B. The Second Bank of the U. S. 1. Created in 1816 2. Nicholas Biddle was president 3. Attempted to regulate credit and the money supply 4. 1836‐ charter expired and not renewed C. State banks grew in popularity VII. Federal Reserve Act of 1913 A. Created a central banking system made up of a bipartisan group of individuals B. Monitored and protected the banking system C. Conducted bank examinations D. Decided whether banks could borrow from the Federal Reserve E. Federal Reserve Board members‐ appointed by the President for 10‐
year terms V VII. Fed Facts A. 12 Federal Reserve Banks B. Do not print money C. Disburse cash as needed
To help students better understand the Federal Reserve, watch a 13‐minute video “The Fed Today” at the following web site: www.federalreserveeducation.or
g/resources/fedtoday There are also lessons that go with the video if the teacher would like supplemental Federal Reserve lessons. Have students play the Fed Chairman game at: http://www.frbsf.org/education/
activities/chairman/index.html Multiple Intelligences Guide
Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Copyright © Texas Education Agency, 2103. All rights reserved. 6 Verbal/Linguistic Visual/Spatial D. Lends money to member banks but not private citizens E. Sets U. S. monetary policy F. Does not set interest rates, but rates fluctuate according to the “discount rate” that the Fed. charges member banks that borrow money IX. Bank Crisis– 1929‐1939 A. Great Depression‐ partial causes: 1. Booming economy 2. Booming stock market leading people to borrow money they didn’t have to buy stock, which is called “buying on margin” 3. Risky investing by individuals led to banks losing money 4. Banks could not invest, businesses failed, unemployment increased, and debts and expenses went unpaid 5. Shortage of money at the banks when people made a “run on the bank” B. “Bank Holiday” when FDR closed banks on March 6, 1933 C. Emergency Banking Act of 1933 1. Also called Glass‐Steagall Act 2. Established the FDIC which guarantees customer deposits 3. Separated commercial banking from investment banking D. Banking Act of 1935 1. Expanded monetary controls of the Federal Reserve 2. Board member terms were lengthened
Ask students how security has changed with banks in the past 50 years regarding a “run on the bank” happening again. Ask students what they think about the banks being told they had to close. Do you think that was fair? Do you think the government should have that authority? Explain that the separation of commercial banking and investment banking was important because, due to the ability of commercial or retail banks being able to sell securities also, people had thought that banks were selling risky securities to customers. Multiple Intelligences Guide
Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Copyright © Texas Education Agency, 2103. All rights reserved. 7 Verbal/Linguistic Visual/Spatial X. The World Bank Group‐ 1944 A. Not a traditional bank B. 188 member countries C. Two goals: 1. Reduce poverty 2. Support development D. Made up of two groups: 1. International Bank for Reconstruction and Development (IBRD)‐ focuses more on middle‐income countries 2. International Development Association (IDA)‐ focuses on the poorest countries XI. World Bank Group Assistance A. Provides low‐interest loans B. Provides grants C. Provides services: 1. education 2. health 3. infrastructure 4. development 5. agriculture XII. Business Financing A. Export‐Import Bank of the U.S. (1934) 1. Part of FDR’s New Deal 2. Assists in financing the exportation of goods from the U. S. to international markets 3. Provides insurance to cover risks such as buyer non‐payment or war, especially in developing countries 4. Offers competitive financing to foreign buyers Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic As the U. S. was growing its banking system, it was also part of the World Bank Group. The World Bank Group was established in 1944 to help countries affected by World War II. Its main purposes were to reduce poverty and support development. Discuss if students have an opinion on whether or not the U. S. should mind its own business, or if we have a responsibility to help countries that are less fortunate. In addition to helping countries recover from the effects of World War II, the U. S. created organizations such as the Export‐
Import Bank of the U. S. to facilitate the exportation of goods, which increased foreign trade. People could not typically go to traditional banks for this type of service. Get student responses on whether or not they think we have an obligation to help other countries in this way. Naturalist Copyright © Texas Education Agency, 2103. All rights reserved. 8 Verbal/Linguistic Visual/Spatial B. Small Business Administration (1953) 1. Financial assistance to small businesses: a. From small loans to venture capital loans b. Government contracting dollars 2. Non‐financial assistance to small businesses: a. Training b. Provides a voice in Congress for small businesses XIII. Today’s Banking System A. Issues affecting banking in the late 20th century: 1. Inflation‐ a rise in the overall Level of prices over time 2. Reduces purchasing power 3. Approached 14% in 1980 B. Monetary Control Act of 1980 1. Most significant reform of the banking industry since the 1930s 2. Raised FDIC insured amounts from $40,000 to $100,000 per account 3. Deregulated interest rates paid on deposits 4. Created NOW accounts (Negotiable Order of Withdrawal) which allowed interest plus checking account features C. Check 21 (2004) 1. Goal was to develop check‐
processing efficiencies 2. Allows “substitute checks” The Small Business Administration also helped small businesses with their financing because many of these new, small businesses could not get loans from commercial banks. Issues affecting banking today are somewhat different than they were in the past. Rising inflation rates in the early 1980s can lead to more borrowing. During the Savings and Loan crisis of the 1980s when many of them failed and went out of business, knowing that the insurance limit on deposit accounts was raised probably increased the trust that customers had in the banking industry. Earning interest on checking accounts was a positive move from the point of view of customers. Until this time, only savings accounts earned interest. Check 21 was created to increase the efficiency of processing checks by allowing “substitute checks.” Multiple Intelligences Guide
Existentialist Interpersonal Intrapersonal Kinesthetic/ Bodily Logical/ Mathematical Musical/Rhythmic Naturalist Copyright © Texas Education Agency, 2103. All rights reserved. 9 Verbal/Linguistic Visual/Spatial Guided Practice 1. Direct students to the comic strip, “The Story of Banks” at the Federal Reserve website (listed above). 2. Pass out an index card to each student. 3. Instruct students to take notes of the major concepts discussed in the story. 4. Ask if students will assume the characters in the story and have them each read their parts aloud. This will help focus students’ attention. 5. When the story is completed, ask the students to volunteer their topics and write them on the board or document camera. 6. As the teacher goes through the lesson outline with the PowerPoint, address each topic that the students mentioned from their notes. Independent Practice  Have students play the Fed Chairman game at: http://www.frbsf.org/education/activities/chairman/index.html  Students can write an exit ticket stating something they learned about the purpose of the Federal Reserve. Summary
Review Ask students the following questions on exit tickets or using a matching activity.  Question #1: True or False. Historically, silver has been worth more than gold as currency. o Answer #1: False. Gold has been worth more historically, even during the “silver standard”.  Question #2: Why is the “spread” important? o Answer #2: The spread is a major way banks can make a profit.  Question #3: Which organization insures customer deposits at banks? o Answer #3: FDIC, or Federal Deposit Insurance Corporation  Question #4: How many Federal Reserve districts are there? o Answer #4: There are twelve.  Question #5: Which organization provides financial and non‐financial assistance to small businesses? o Answer #5: The Small Business Administration Evaluation
Informal Assessment Any and all of the following can be used as informal assessments:  Exit tickets with vocabulary  Pair‐share activities  Class discussion and participation Copyright © Texas Education Agency, 2103. All rights reserved. 10 Formal Assessment  Dollar Bill Poster Assignment #1‐ Students are to research the symbolism of the elements of the dollar bill. They are to either enlarge a print copy or draw a dollar bill, front and back, onto a poster or flip chart page. Label at least 10 items on the bill with the meaning behind the symbols. For example, explain what the scale, pyramid, or eagle means.  World Bank Research Assignment #2‐ Have students go to the World Bank website listed in the Reference section. Locate the Project Map link. They should click on a location and observe the number of projects in that area being funded by the World Bank. Students will write a one‐page report detailing at least two projects going on in that particular area and state the positive consequences and potentially negative consequences (such as effects of the cash outlay of the project, effect on neighboring areas, etc.) of the projects themselves as well as how much funding is involved.  Money and Banking Timeline Assignment #3‐ Students are to create a timeline of at least 10 events they consider to be important in the history of banking. In addition to stating the event, date, and a brief description, students will include the impact on either the economy, banking institutions, or the public as consumers. This timeline can be created on the computer. Enrichment
Extension Students can conduct additional research about the Federal Reserve. Students will compile a list of at least five additional facts and characteristics of the Federal Reserve and combine them into a one‐page report. Copyright © Texas Education Agency, 2103. All rights reserved. 11 The Evolution of Banking Dollar Bill Poster Assignment #1 Student Name ______________________ CATEGORY 20 15 8 Labels All items of importance on the poster are clearly labeled. Almost all items Several items of of importance on importance on the poster are the poster are clearly labeled. clearly labeled. Graphics ‐ Relevance All graphics are All graphics are All graphics related to the related to the relate to the topic and make it topic and most topic. easier to make it easier to understand. understand. Required Elements The poster includes all required elements as well as additional information. All required elements are included on the poster. All but one of Several required the required elements were elements are missing. included on the poster. Attractiveness The poster is exceptionally attractive in terms of design, layout, and neatness. The poster is attractive in terms of design, layout, and neatness. The poster is acceptably attractive (though it may be a bit messy). The poster is distractingly messy or very poorly designed. It is not attractive. Content ‐ Accuracy At least 10 accurate facts are displayed on the poster. Seven to nine accurate facts are displayed on the poster. Four to six accurate facts are displayed on the poster. Less than four accurate facts are displayed on the poster. Maximum Points Possible: 100 Student Points: _________ Copyright © Texas Education Agency, 2103. All rights reserved. 12 1 Labels are too small to view OR no important items were labeled. Graphics do not relate to the topic. The Evolution of Banking World Bank Research Assignment # 2 Student Name ______________________ CATEGORY 20 15 8 Quality of Information Information clearly relates to the main topic. It includes several supporting details and/or examples. Information clearly relates to the main topic. It provides one to two supporting details and/or examples. Information Information has clearly relates to little or nothing the main topic. to do with the No details and/or main topic. examples are given. Organization Information is very organized with well‐
constructed paragraphs and subheadings. Information is organized with well‐constructed paragraphs. Information is organized, but paragraphs are not well constructed. The information appears to be disorganized. Paragraph Construction All paragraphs include introductory sentence, explanations or details, and concluding sentence. Most paragraphs include introductory sentence, explanations or details, and concluding sentence. Paragraphs included related information but were typically not constructed well. Paragraphing structure was not clear and sentences were not typically related within the paragraphs. Mechanics No grammatical, spelling, or punctuation errors. Almost no grammatical, spelling, or punctuation errors A few grammatical, spelling, or punctuation errors. Many grammatical, spelling, or punctuation errors. Diagrams & Illustrations Diagrams and illustrations are neat, accurate, and add to the reader's understanding of the topic. Diagrams and Diagrams and illustrations are illustrations are accurate and add neat, accurate, to the reader's and sometimes understanding of add to the the topic. reader's understanding of the topic. Maximum Points Possible: 100 Student Points: _________ Copyright © Texas Education Agency, 2103. All rights reserved. 13 1 Diagrams and illustrations are not accurate OR do not add to the reader's understanding of the topic. The Evolution of Banking Money and Banking Timeline Assignment #3 Student Name ______________________ CATEGORY 20 15 8 1 Content/Facts Facts were accurate for all events reported on the timeline. Facts were accurate for almost all events reported on the timeline. Facts were accurate for most (~75%) of the events reported on the timeline. Facts were often inaccurate for events reported on the timeline. Readability The overall appearance of the timeline is pleasing and easy to read. The overall The timeline is appearance of the relatively timeline is readable. somewhat pleasing and easy to read. Learning of Content The student can accurately describe 75% (or more) of the events on the timeline without referring to it and can quickly determine which of two events occurred first. The student can accurately describe 50% of the events on the timeline without referring to it and can quickly determine which of two events occurred first. The student can The student describe any event cannot use the on the timeline if timeline allowed to refer to effectively to it and can describe events determine which nor to compare of two events events. occurred first. Dates An accurate, complete date has been included for each event. An accurate, complete date has been included for almost every event. An accurate date has been included for almost every event. Spelling and Capitalization Spelling and capitalization is correct throughout. Spelling and There were two to There were many capitalization was three spelling spelling and mostly correct. and/or capitalization capitalization errors. errors. Maximum Points: 100 Student Points: _______ Copyright © Texas Education Agency, 2103. All rights reserved. 14 The timeline is difficult to read. Dates are inaccurate and/or missing for several events.