7.00 Explain the importance of banking among government,

business, and the consumer

7.01 Analyze the roles/responsibilities of the

Federal Reserve • I. STRUCTURE OF THE FEDERAL

RESERVE SYSTEM.

• II. FEDERAL RESERVE ACTIVITIES

I. STRUCTURE OF THE FEDERAL RESERVE SYSTEM

Organized by the Federal Gov. in 1913 to supervise and regulate banks.

• Assists banks with serving the public more efficiently.

• Known as the “bank’s bank”. The central bank of the U.S.

• All national banks are required to join the Fed.

• State banks have the option of joining the system.

I. STRUCTURE OF THE FEDERAL RESERVE SYSTEM

Divisions of The Federal Reserve:

• Divisions are called districts--12 districts in the U.S.

• Every state comes under a district. • Each Federal Reserve Bank is a

corporation, owned by its member banks.

II. ACTIVITIES OF THE FEDERAL RESERVE

The Federal Reserve supervises banks:

• Accepts deposits• Lends money• Holds reserves• Sets limits for loans• Approves bank mergers• Inspects banks

II. ACTIVITIES OF THE FEDERAL RESERVE

The Federal Reserve participates in open market operations:

• Buys & sells fed. gov. securities• Monitors the reserve requirement• Monitors the discount rate• Supplies paper currency

II. ACTIVITIES OF THE FEDERAL RESERVE

• The Federal Reserve clears checks between banks in different cities. EFT and Automated clearinghouses are used.

7.02 Evaluate ways that commercial banks can assist

consumerswith money management.

COMMERCIAL BANK SERVICES THAT ASSIST WITH MONEY MANAGEMENT

COMMERCIAL BANK SERVICES THAT ASSIST WITH MONEY MANAGEMENT

Accepting deposits:

• Safe method of saving for the future• Money earns interest• Less temptation to spend money

COMMERCIAL BANK SERVICES THAT ASSIST WITH MONEY Mgt.

Transferring Funds (EFT):– Automatic payments

• Helps in budgeting • Helps with bill paying

– Automatic transfer• Systematic savings habit

– (Transfer to savings account)• Savings transferred to checking when

needed• Automatic deposit• Paychecks deposited into check acnt.• ATM

COMMERCIAL BANK SERVICES THAT ASSIST WITH MONEY Mgt.

Transferring Funds (continued):

– Debit card (or payment with ATM card)• Purchases made without cash• Home banking• Inquiries• Assistance with accounts• Use computer in bill paying

COMMERCIAL BANK SERVICES THAT ASSIST WITH MONEY Mgt.

Lending Money:

• Loans for major purchases • (Home, automobile, college)• Bank credit card

COMMERCIAL BANK SERVICES THAT ASSIST WITH MONEY Mgt.

Storing Valuables:• Offer safe-deposit boxes• Boxes are in well-guarded vaults• Used to store items and documents

of value:– Jewelry– Bond/stock certificates– Birth records– Wills, and insurance policies

COMMERCIAL BANK SERVICES THAT ASSIST WITH MONEY Mgt.

Providing Financial Advice:

• Investment services– Manage money more efficiently

• Advice on investments

COMMERCIAL BANK SERVICES THAT ASSIST WITH MONEY Mgt.

Trust Management:

• Managing investments on behalf of the young and elderly

Obj. 7.03 Discuss technological advances and their impact on the banking

industry.TECHNOLOGY IN THE BANKING

INDUSTRY

TECHNOLOGY IN THE BANKING INDUSTRY

I. Electronic Funds Transfer

II. Magnetic Ink/Optical CharacterRecognition (MICR/OCR)

III. Automated Clearinghouse (ACH)

IV. Other Uses of the computer in banking

I. Electronic Funds TransferAutomatic Teller Machines (ATMs):Convenient & easy to use (24 hrs).Eliminates need for some bank

tellers.Fees for transactions generate

income for bank.Funds transferred more quickly.Customer safety is a concern as

ATMs are accessible 24 hours a day.

I. Electronic Funds Transfer

Banking at home:Allows customers on-line access to

account info & transactions at any time & place.

Some employees will need re-training.

Account security becomes an issue.

I. Electronic Funds Transfer

Point of Sale (POS) transactions:Now possible using an ATM card (gas

stations, supermarkets, retail stores & restaurants)

Reduces amount of paper work for transactions.

Customer accounts are updated instantly.

I. Electronic Funds Transfer

Direct Deposit:Allows customer paychecks to be

deposited electronically.Reduces paper work.Customer accounts are updated

instantly.

I. Electronic Funds Transfer

Debit Cards:Will reduce/eliminate the need for

checkbooks.Convenient and easy to use.Accounts are updated immediately.

I. Electronic Funds TransferElectronic Money (E-cash):Customer pays face value for a

programmed plastic card worth a certain amount of money.

Customer can use the card in place of cash, until all E-cash is spent.

Funds are transferred electronically from the customer’s account to the merchant’s account.

May be a problem for the Federal Reserve & our monetary system.

II. Magnetic Ink/Optical Character Recognition

(MICR/OCR)Check are sorted & exchanged

electronically.Saves time and money.Most checks are not verified by

humans at the bank.Bank is responsible if a forged check

is cashed.

III. Automated Clearinghouse (ACH)

Electronically transfer funds between accounts in different banks.

Used for Federal Reserve check clearing.

IV. Computer Banking Other UsesFast/instant loan approval for

customers.Computer generated customer bank

statements.Photogenic record of canceled checks

on microfilm (check safekeeping).Up-to-date customer records.Customer can print checks at home

with personal computers.