banking systems, 2e © cengage/south-western slide 1 the business of banking 1.1 1.1 introduction to...
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Banking Systems, 2e© Cengage/South-Western Slide 1
THE BUSINESSOF BANKINGTHE BUSINESSOF BANKING
1.1 Introduction to Banking1.2 Role of Banks in the Economy1.3 How the Banking System Works1.4 Other Financial Institutions
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Banking Systems, 2e© Cengage/South-Western Slide 2
1.1
INTRODUCTIONTO BANKING
1.1
INTRODUCTIONTO BANKING
Define the business of banking.Identify trends in modern banking.
GOALS
Banking Systems, 2e© Cengage Learning/South-Western Slide 3
Medium of exchange Financial intermediary Commercial bankRetail bankCentral banks
TERMS
Banking Systems, 2e© Cengage Learning/South-Western Slide 4
What is a Bank?What is a Bank?
• A bank is a business • Banks sell their services to earn money, and they
market and manage those services in a competitive field
• In many ways, banks are like other businesses that must earn a profit to survive
Banking Systems, 2e© Cengage Learning/South-Western
4 Functions of a Bank4 Functions of a Bank
Safeguarding fundsTransferring fundsExchanging moneyLending money
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Banking Systems, 2e© Cengage Learning/South-Western
Money is a Medium of ExchangeMoney is a Medium of Exchange
Medium of exchangeAn agreed upon system for measuring the value of goods
and servicesFinancial intermediary
An institution, firm or individual who mediates between two or more parties in a financial context.
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Banking Systems, 2e© Cengage Learning/South-Western
Making of Money VideosMaking of Money Videos
History of Money VideoHow money is made
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Banking Systems, 2e© Cengage Learning/South-Western
Banks are Financial IntermediariesBanks are Financial Intermediaries
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a bank can act as your agent for using or protecting that money, which makes it a financial intermediary for: the safeguardingTransferringExchanging or lending of money.
Banking Systems, 2e© Cengage Learning/South-Western
Closely RegulatedClosely Regulated
Because banks and money are essential to maintaining not only economies but entire societies, they are closely regulated and must operate by strict principles and procedures
In the United States, banks may be chartered by federal or state governments.
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Banking Systems, 2e© Cengage Learning/South-Western
Bank OrganizationBank Organization
• Banks are usually corporations and may be owned by groups of individuals, corporations, or both
• In the US, all federally chartered banks have been required to be corporations since 1863
• Around the world banks are supervised by governments to guarantee the safety and stability of the money supply and of the country
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Banking Systems, 2e© Cengage Learning/South-Western Slide 11
Types of BanksTypes of Banks
• Commercial Banks• Retail Banks• Central Banks
Banking Systems, 2e© Cengage Learning/South-Western
Commercial BanksCommercial Banks
Generally what we think of as a bankConduct about 60% of the deposit and loan
business in the U.S.Provide familiar services
Checking and savings accountsCredit cardsInvestment services
Offer their services to both businesses & people
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Banking Systems, 2e© Cengage Learning/South-Western
Retail BanksRetail Banks
Institutions that help individuals not served by commercial banks
Mutual savings banksSavings and loansCredit unions
Help customers save money, acquire loans, and invest
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Banking Systems, 2e© Cengage Learning/South-Western
Central BanksCentral Banks
Government banks that manage, regulate, and protect the money supply & the banks themselvesIssue currencyConduct monetary policy
The Federal Reserve System performs the central banking function in the U.S.
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Banking Systems, 2e© Cengage Learning/South-Western
The Federal ReserveThe Federal Reserve
Owned by the banksBoard of Governors appointed by the President
& SenateThe President of U.S. selects the chair of the
Federal Reserve
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Banking Systems, 2e© Cengage Learning/South-Western Slide 16
List four functions that define a bank.
checkpoint
Banking Systems, 2e© Cengage Learning/South-Western
Banking TodayBanking Today
3 Factors that have changed the banking industry:1. Mergers2. Technology3. Competition
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Banking Systems, 2e© Cengage Learning/South-Western Slide 18
MergersMergers
MergerWhen one or more banks join or acquire another
bank or banks
Mergers increase the size of banks, giving them more resources
Decreases the number of banks
Banking Systems, 2e© Cengage Learning/South-Western
Bank MergersBank Mergers
Banks are larger & ownership is concentratedFewer banks control more & more of the
nation’s moneyAbout 25 large banks control 45% of U.S.
assetsThe largest banks control about 75% of
domestic assets
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Banking Systems, 2e© Cengage Learning/South-Western
After a merger…After a merger…
Some consumers face higher fees Banks have less community involvement Banks offer less lending in local areas
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Banking Systems, 2e© Cengage Learning/South-Western Slide 21
Banking Systems, 2e© Cengage Learning/South-Western
Banking is InternationalBanking is International
Technology has allowed banking to become more international
Instant communication & transfer of funds so geographic boundaries do not matter
U.S. banks put together huge investment transactions overseas & engage in investment banking prohibited in the U.S.
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TECHNOLOGYTECHNOLOGY
Operations have been automatedAccountingAuditingExamining functions
Instantaneous transactionsFunds transferRecord keepingFinancial analyses
Banking Systems, 2e© Cengage Learning/South-Western Slide 24
CompetitionCompetition
Competition is an ongoing challengeMore services are available to consumers as
banks compete to earn customers’ financial business
Banks are more sales oriented with an emphasis on service, innovation, and marketing
Banking Systems, 2e© Cengage Learning/South-Western Slide 25
Book WorkPg. 9 #1-4Turn in within 15 minutesThen we will go to the computer lab.
Banking Systems, 2e© Cengage Learning/South-Western
Create Your Own Currency Create Your Own Currency
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