Summary of Money and Banking

Definition of Money

  • Money: Anything accepted as payment for goods and services.

Characteristics of Money

  • Scarcity: Limited availability to maintain value.

  • Durability: Should withstand physical wear.

  • Portability: Easy to carry and use.

  • Divisibility: Can be divided into smaller units for transactions.

Functions of Money

  • Medium of Exchange: Facilitates transactions.

  • Standard of Value: Provides a common measure for pricing.

  • Store of Value: Retains value over time.

U.S. Money Supply

  • Components:

    • Currency: Coins and paper money.

    • Demand Deposits: Checking accounts.

    • Time Deposits: Interest-bearing deposits that can't be withdrawn on demand.

Federal Reserve System (The Fed)

  • Functions:

    • Carrying out monetary policy.

    • Setting credit rules.

    • Distributing currency.

    • Easing check clearing.

  • Tools for Managing Money Supply:

    • Open Market Operations.

    • Reserve Requirements.

    • Discount Rate.

  • Crisis Response: Provided over $9 trillion in loans during the 2007–2009 financial crisis, also supported legislation like Dodd-Frank.

U.S. Financial Institutions

  • Types:

    • Depository Institutions: Commercial banks, thrift institutions, credit unions.

    • Nondepository Institutions: Insurance companies, pension funds, brokerage firms, finance companies.

  • Role in Financial Intermediation: Facilitate fund transfers between lenders and borrowers.

Insuring Bank Deposits

  • FDIC: Insures deposits in commercial banks via the Bank Insurance Fund and thrift institutions via the Savings Association Insurance Fund.

  • National Credit Union Administration: Insures credit union deposits through the National Credit Union Share Insurance Fund.

  • Regulatory Role: Sets policies, reviews banks annually for fairness and profitability.

International Banking

  • Role of U.S. Banks: Provide loans and trade-related services to foreign entities; offer cash management and foreign-currency exchange services.

Trends in Financial Institutions

  • Focus Areas:

    • Regulatory compliance due to recent crises.

    • Operational efficiency and technological advances.

    • Customer engagement and technology initiatives.

  • Fintech Impact: Disruption in banking, increased innovation, and operational efficiencies.

  • Mobile Financial Apps: Strategic advantage for banks and enhanced customer data utilization.

  • Online Payment Platforms: Essential for meeting consumer expectations and driving banking sector innovation.