Seminar: Timely Topics for
Today’s Business World
Mr. Bernstein
Banking
February 2016
Seminar: Timely Topics for Today’s
Business World
Mr. Bernstein
Traditional Role of Banks
Individuals (“retail”) deposit savings, earning a return of x%
Banks loan money to businesses with interest rate x+5%
e Banks earn a “spread” of 5%
Banks lose money when a loan is not repaid
e If they earn a spread of 5% and 1 in 20 loans is not
repaid, they do not make money.
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Seminar: Timely Topics for Today’s
Business World
Mr. Bernstein
Traditional Role of Banks
Banks can “leverage” by loaning out more money than
they hold in deposits
If a bank with 5% average spread loans out $2 for every
$1 in deposits, and 1 in 20 loans is not repaid, they
will lose money
Government officials regulate the amount of leverage
banks may use (“reserve requirements”)
This leveraging allows banks to essentially create money
and is an important part of a thriving economy
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Seminar: Timely Topics for Today’s
Business World
Mr. Bernstein
Types of Personal Banking Financial Services
Checking Accounts
Savings Accounts
CDs
Debit Cards
Credit Cards
Direct Deposit
Overdraft Protection
Bill Paying
ATMs
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Seminar: Timely Topics for Today’s
Business World
Mr. Bernstein
Other Financial Services offered by Banks*
Personal and Auto Loans
Home Mortgages and Home Equity Loans*
Investment and Retirement Products*
Home, Life and Auto Insurance*
*These products and services are typically offered by another
division of the bank or even an outside partner. Your local
branch office is essentially acting as a sales conduit,
making a helpful introduction to another entity.
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Seminar: Timely Topics for Today’s
Business World
Mr. Bernstein
Why do
banks
offer other
Services?
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Seminar: Timely Topics for Today’s
Business World
Mr. Bernstein
CD rates,
1965Present
(& still near zero in 2015…)
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Seminar: Timely Topics for Today’s
Business World
Mr. Bernstein
CD rates,
1965present
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Seminar: Timely Topics for Today’s
Business World
Mr. Bernstein
Fed Funds
Rate
1952present
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Seminar: Timely Topics for Today’s
Business World
Mr. Bernstein
Interest Rates for Savers
Why are rates currently so low?
Is it reasonable to assume rates likely to remain low
throughout your lifetime?
What is the relationship between inflation and
interest rates?
Who is the lady in this picture?
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