Banking Basics

BELLRINGER—TWO PARTS

1.Take Pretest via www.m.g-wlearning.com. (5 min.)

2.Complete a word study on BANK. (10 min.)

Objectives• Describe the purpose of a bank.• Compare and contrast different types of

banks,• Explain the effect technology has had

on modern banking.

In groups of 2 or 3 . . .

make a list of things that you think banks do.

What is a Bank? A type of financial institution that provides services

related to money. Deposits, loans, and other services Handle money and make money, Lend money at a higher interest rate than they pay

depositors; Provide safe-deposit boxes; Charge fees of various kinds

Highly regulated Bank’s charter details how to be operated and

regulated Banks are depository institutions—customers can give

make a deposit or make a withdrawal Doesn’t keep 100% of deposits available—keeps

reserves on hand. (held to ensure money is available to customers

What does a bank do? Retail banks: provide services for consumers i.e. deposit

accounts, mortgage, auto, credit cards, and personal loans Internet banks: no physical location or building, no in-person

service Commercial banks: focuses on business customers for foreign

exchange, investment services, capital loans, limited consumer-oriented services i.e. personal checking and savings accounts

Money Center banks: very large, often international, primary customers are businesses, other banks, and governments . Hit hard by global financial crisis in 2007

Investment banks: helped companies prepare to become publicly traded companies to make profit from stock market.

Central banks: lend money when commercial banks are not able to , they regulate banks, and control the money supply

Who Owns the Bank? In U.S.,

corporations or individuals

In some countries, government (nationalization)

Where Do Banks Operate? Unit banks: small

towns or rural areas

Regional or interstate banks: across a state or few

National banks: across the country

Technology’s Transformation of Banking

Automated Teller

Machines (ATM)

Online Banking

Mobile Banking (apps)

Discussion . . . What are the

different ways a consumer can bank today?

Can you think of any ways that banking may have changed throughout the years?

Small Group Activity Create a chart outlining the different

types of banks, the basic aspects of each type, and a major advantage and disadvantage of each type.

Analyze these different types of banks based on the two viewpoints: what the bank does, and where the bank operates.

Whole Class Activity

Answer, Justify, Co-sign, or

Decline

Closure . . .

Double-back to Word Study . . . BANK

Bellringer Word study: Federal Deposit

Insurance Corporation

Objectives Describe the economic functions of

banks. Explain a bank’s safekeeping function. Explain how credit is essential to a

country’s economy. Define the bank’s role as financial

intermediary. Discuss why fast and certain access to

funds are keys to a banking system.

Economic Functions of Banks Safekeeping services that protect our

money Deposit services that let our money

grow Loan services that allow us to borrow

money

Keeping Money Safe Physical and electronic security Keep accurate records (trail of business

activities) Debit card (check card) allows us to

withdraw cash and pay for goods/services

Deposits insured by ____________ (you tell me)

Extending Credit Major lenders in our economy Without them, borrowers suffer Economy relies on banks to provide

loans to keep it growing.

Transferring Funds Electronic funds transfer (EFT): electronic

exchange of money from one account to another through computer-based systems

Example(s): use of debit card or ATM Most funds transfers involve automated

clearinghouses (ACHs)—processing credit and debit transactions and transferring funds from bank to bank

Example(s): Federal Reserve Bank (60% of transactions)

Loan CycleBank uses deposits to make a car

loan to customer

Customer uses loan to buy car from

car dealer

Car dealer pays car salesman

after sale of car

Car salesman buys a new TV with the

money received

TV store deposits

money into bank account

Small group activity . . .Get into groups of two or three and

discuss the term financial intermediary. Have you heard this term

before? Using what you already know about these two individual words, come up with your own definition of this term and how it applies to banks. Prepare to

share your ideas with the class.

Financial Intermediary Institution that acts as a go-between in

financial transactions Play a vital role in our economy Banks use money from savers to make

loans Both saver and borrower receive

services they need

Discussion . . . How do banks

make money? How do offering

credit cards and other loans contribute to this end?

More Discussion . . . While lending money

is necessary to keep the economy flowing, what are some possible negative consequences of lending money?

Discuss this issue in light of the Great Recession of the 21st century—how might poor lending decisions have affected the economy in this situation?

Whole Class Activity

Answer, Justify, Co-sign, or

Decline

Closure . . . Revisit Word Study: FDIC