Understanding Banks 3.1

"Cash is King"... But cash can be easily:

Lost

Stolen

Damaged

Banks provide a _____ place to ______ money

secure, safe

A financial institution licensed to receive and store deposits, and provide loans and other financial services to individuals and organizations

Bank

A sum of money securely stored at a bank

Deposit

Banks store physical currency in _____, transported by armored __________

vaults, trucks

A sum of money borrowed with the expectation to be paid back with interest over a specified period of time.

Loan

Loans enable activities such as buying _____, ________ ________, and using credit cards

homes, starting businesses

In loan transactions there are two parties, known as

Debtor(borrower) and Creditor(lender)

An individual or entity that owes money to another party

Debtor

An individual entity that lends money or extends credit to another

Creditor

For the use of the depositors money, banks offer _______ and _______ to depositors

interest, services

The cost (or income) of borrowing (from loaning) money.

Interest

Services from bank

Secure storage

Easy access

Online banking

Deposit insurance

Also called "interest rate spread", it is the difference between the interest banks earn on their loans, and the interest banks pay to their depositors.

Net Interest Margin

Bank: Interest rate bank pays on savings account

Debtor: Interest rate on a Home loan

The bank earns __% - The bank pays __% = The bank makes __%

1%, 6%, 5%

Banks _______ deposits and ______ while keeping sufficient ____ on hand

balancing

loans

cash

FDIC stands for.........

Federal Deposit Insurance Corporation

FDIC insurance protects depositor funds up to $_________ per account per insured bank

$250,000

Occurs when too many people try to withdraw their money from a bank at the same time, fearing the bank won't be able to meet its financial obligations

Bank Run

Coverage includes _______ accounts, ________ accounts, _____, and _______

______ __________ accounts

checking, savings, CDs, Money market deposit

FDIC insurance maintains public _______ and ________ bank runs by gurenteeing deposits

trust, prevents

Depository Services

MMAs

CDs

Checking accounts offer easy access to funds but typically do not cover interest

Savings account: earn interest but have withdrawl limitations

Loan Services

Personal loans

Mortgages

Auto loans

Business loans

Lines of Credit

Payment and Transfer Services

credit and debit cards for convienient payments

Online and Mobile Banking

manage accounts

transfer money

Pay bills via smartphones or other devices

Investment Services

stocks

bonds

mutual funds

retirement accounts

provide personal banking products and services to consumers and small business

operate though branch locations, online platforms, and mobile apps

ex. checking/savings account, debit/credit cards and personal loans

Retail Banks

serve larger businesses and corporations

offer services like large loans, real estate financing, and cash management

Ex. JP Morgan, Chase, PMC, Bank of America, Wells Fargo

Commercial

a macroeconomic policy that stimulates or slows down the economy by lowering or raising interest rates, and by determining the amount of money supply in circulation

Monetary Policy

Implement monetary policy to manage the economy

regulate the banking system and ensure financial stability

act as the lender of last resort during financial crisis

-Financial Reserve Bank in the United States

Central Bank

help entities raise capital through stocks and bonds

provide advisory services for mergers, acquisitions, and financial transactions

ex. Goldman Sachs, Morgan Stanley

Investment

Member-owned financial cooperatives

offer higher deposit interest rates and lower loan rates

Membership is often based on a common community

Credit Unions