1
1.1
1.2
1.3
1.4
Slide 1
THE BUSINESS
OF BANKING
Introduction to Banking
Role of Banks in the Economy
How the Banking System Works
Other Financial Institutions
© South-Western Publishing
Lesson 1.1
INTRODUCTION
TO BANKING
GOALS
Define the business of banking
Identify trends in modern banking
Slide 2
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WHAT IS A BANK?
A bank is a business.
Banks sell their services to earn money.
Banks must earn a profit to survive.
Slide 3
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A UNIQUE BUSINESS
The services banks offer to customers have to do
almost entirely with handling money for other people.
Money is a medium of exchange—an agreed upon system
for measuring values of goods and services.
Money shows how much something is worth.
A bank is a financial intermediary for the safeguarding,
transferring, exchanging, or lending of money.
An intermediary is a facilitator acting between parties.
Banks facilitate the flow of money throughout our economy.
Slide 4
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TYPES OF BANKS
Commercial banks
Retail banks
Central banks
Slide 5
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BANKING TODAY
Traditionally, banking was viewed as a solid and
slow-moving industry.
Banking today is an exciting, fast-moving,
around-the-clock, around-the-world activity.
Slide 6
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MERGERS
A merger occurs when one or more banks join or
acquire another bank or banks.
Mergers increase the size of banks, giving them
more resources.
Mergers decrease the number of banks.
Mergers have created an opening for a new
wave of small local banks.
Slide 7
© South-Western Publishing
TOP TEN LARGEST
BANKS WORLDWIDE
(Ranked by size of assets)
Bank
Mizuho Financial Group
Citigroup
Deutsche Bank
JP Morgan Chase Co.
Bank of Tokyo-Mitsubishi
HSBC Holdings
Hypo Vereinsbank
UBS
BNP Paribas
Bank of America Corp.
Slide 8
Country
Japan
United States
Germany
United States
Japan
United Kingdom
Germany
Switzerland
France
United States
© South-Western Publishing
TECHNOLOGY
Impact on bankers
Accounting, auditing, and examining functions have
been taken over by fast and efficient technology.
Funds transfer, record keeping, and financial
analyses have become instantaneous.
Impact on consumers
Automated teller machines (ATMs)
“Smart” cards
Online banking
Slide 9
© South-Western Publishing
COMPETITION
As government regulations have changed,
competition between banks has become fiercer.
Banks compete with each other and with other
businesses that sell financial services.
Slide 10
© South-Western Publishing
Lesson 1.2
ROLE OF BANKS IN
THE ECONOMY
GOALS
List banking activities that contribute to
economic stability
Explain how banking expands the
economy
Slide 11
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BANKS AND ECONOMICS
Money is a medium of exchange and the basis
of the modern economy.
Banks and other institutions play a critical role in
performing services that are essential to the
functioning of an economy.
Slide 12
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KEEPING YOUR MONEY SAFE
Record keeping
Identification
Enforcement
Transfer security
Sound business practices
Slide 13
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SPREADING THE WEALTH
Banks play a key role in transferring money to
provide growth and stabilizing the monetary
supply.
Bank lending makes money available to
consumers and businesses to make purchases
they might not otherwise be able to make.
Slide 14
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TRANSFERRING
Between banks
Between banks and individual customers
Between banks and industry
Between banks and governments
Between governments
Slide 15
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LENDING
Loans to businesses
Loans to governments
Loans to individuals
Credit cards
Home loans
Automobile loans
Slide 16
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CREDITWORTHINESS
Evaluating the creditworthiness of customers
is a banking function that affects the economy
at large.
Banking policies and regulations regarding
creditworthiness and the ratio of loans to
deposits help guarantee a secure financial
environment.
Slide 17
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GUARANTEEING THE MONEY
 In the United States, banks and the government work together
to form the banking system and to make sure the money
supply is adequate, appropriate, and trustworthy.
 Much of this guarantee is backed through the central banking
function of the Federal Reserve.
 Individual banks work with the government to implement
monetary policy, perform exchange functions, and defeat
counterfeiters of currency.
 Banks guarantee their own policies.
Slide 18
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THE SUBSTANCE OF SOCIETY
A great part of the economic system is
psychological.
Banks are at the heart of our financial system,
and their effect on your life cannot be calculated.
Slide 19
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Lesson 1.3
HOW THE BANKING
SYSTEM WORKS
GOALS
Explain how banks acquire money to do
business
Identify new services that banks offer to
stay competitive
Slide 20
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MONEY AT WORK
Banks earn money in various ways.
Most of their income comes from the interest that
people or businesses pay as they repay a loan.
When banks lend money, they put it to work.
Slide 21
© South-Western Publishing
THE SPREAD
The difference between what a bank pays in
interest and what it receives in interest is called
the spread, or net interest income.
The spread is not pure profit. The spread is
income, or revenue.
Profit is what is left of revenue after costs are
deducted.
Slide 22
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OTHER FUNDS
In addition to interest income, banks have other
sources of income.
They charge for various services such as rental
of safe-deposit boxes, account maintenance
fees for checking accounts, fees for online bill
payments, and ATM transaction fees.
Banks make money on investments.
Banks may have funds at their disposal from
stockholder investments.
Slide 23
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ASSETS AND LIABILITIES
An asset is anything of value. In financial terms,
that usually means money.
A liquid asset is anything that can readily be
exchanged, like cash.
A liability, in financial terms, is a cash obligation.
Slide 24
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TWO PRINCIPLES OF BANKING
A bank’s liabilities exceed its reserves.
A bank’s liabilities are more liquid than its assets.
Slide 25
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BANKS WORKING FOR YOU
Banking has changed radically in the last 20 years.
Large regional banks have huge resources.
Smaller banks use the flexibility that sometimes
comes with smaller size to their advantage.
Slide 26
© South-Western Publishing
CHANGES IN TRADITIONAL SERVICES
Branch locations
Extended hours
Drive-up windows
Variety of checking accounts
Savings options
Personal service
Slide 27
© South-Western Publishing
NEW SERVICES
Credit cards
Innovative lending
Automated teller machines (ATMs)
Smart cards
Online banking
Slide 28
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Lesson 1.4
OTHER FINANCIAL
INSTITUTIONS
GOALS
Explain depository financial institutions
Explain nondepository financial institutions
Slide 29
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TYPES OF FINANCIAL INSTITUTIONS
Depository intermediaries
Obtain funds from the public
Use the funds to finance their business
Nondepository intermediaries
Do not take or hold deposits
Earn their money by selling specific services or
policies
Slide 30
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DEPOSITORY INTERMEDIARIES
Commercial banks
Savings and loan associations
Mutual savings banks
Credit unions
Slide 31
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NONDEPOSITORY INTERMEDIARIES
Insurance companies
Trusts companies/pension funds
Brokerage houses
Loan companies
Currency exchanges
Slide 32
© South-Western Publishing