Objective 4.02

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Objective 4.02Understand the banking system

1Classification of financial institutions

2Classification of Financial InstitutionsDepositoryEarns money to finance their business by accepting deposits from customers Types include:Commercial banksMost commonOffer many different services including savings, loans, and checking accounts.Savings and loan associations (S&Ls)Traditionally specialize in savings accounts and home loans Have become very similar to commercial banks.

3Classification of Financial InstitutionsTypes of Depository Institutions continued

Mutual savings banksare owned by the depositors and specialize in savings and home loans.Credit unionsnot-for profit, serve their members only, and are owned by their depositors.

Classification of Financial Institutions continuedNon-depositoryEarns money to finance their business by selling specific services such as policies, investments, and loansTypes include:Life insurance companiesInvestment companiesConsumer finance companiesMortgage companiesCheck-cashing outletsPawnshops

5Classification of Financial Institutions continuedSelecting A Financial InstitutionWhat should you look for?Services- savings accounts; checking accounts; loans; credit cards and other services like safe deposit boxes and investment adviceSafety- Does the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insure the institution against losses? Convenience- 24-hour banking; location of branch officesFees and charges- ATM charges; checking account feesRestrictions- Minimum balance requirements

6What kinds of questions may be asked about each characteristic?Services Does the institution offer savings, checking, loans, credit cards, safe deposit boxes, trusts, etc?Safety Does the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insure the institution against losses?Convenience Does the institution offer the access you desire?Fees and Charges What are the short and long-term costs of the services?Restrictions Are there minimum balances that must be kept, or other restrictions?

Checks and Payment Methods

4.02 Understand the Banking System

7Checks and Payment MethodsOpening a checking accountSigning a signature card is the first stepBank compares signature on checks to signature on cardJoint account- 2 or more peopleFill our a deposit slip to deposit money in your account8Checks and Payment MethodsEndorsing a checkAn endorsement allows the payee to cash the check, deposit the check or transfer payment of the check to someone else.Different types of endorsements:BlankFullRestrictive

Blank EndorsementConsists of endorsers name onlyAnyone who has a check with a blank endorsement may cash it.

10Special EndorsementTransfers payment of a check to someone else.Can be used to make payment on a debtJuan Delgado is the payee on this check.

11Restrictive EndorsementLimits use of the check so it can only be deposited to endorsers account.Safest type of endorsement, as it cannot be cashed by a thief or someone who finds the check.Safest endorsement to use when mailing a check for deposit or when using the ATM for deposit.

12Check Writing ProceduresEnsure all information is written in the check register first, and ensure checks are written in numerical order.Write the date the check is written.Write the payees name on the line following Pay to the Order of..Write the amount of the check in figures after the $ sign

13Check Writing Procedures continuedWrite in the amount of the check in words.Write in the purpose of the check.Sign the check.

14Bank ReconciliationBank reconciliation- A bank reconciliation is the document created to show how your own record of your checking account and the banks record of your account were brought into agreement.

Outstanding checks- checks that have not been deducted from the bank statement balance

What is a bank reconciliation?A bank reconciliation is the document created to show how the two balances (your own record of your checking account and the banks record of your account) were brought into agreement.

What is an outstanding check?Outstanding checks are checks that have not been deducted from the bank statement balance.15Steps in a Bank ReconciliationObtain the monthly bank statement.Determine checks paid.Find differences between the monthly bank statement and monthly check register.Calculate the adjusted balance.If the balances do not agree, check the steps again and recalculate.16Other Types of PaymentsElectronic PaymentsDebit cards (check cards) amount of purchase is deducted from your checking accountOnline payments- paying bills or making purchases over the internetStored-Value cards- prepaid cards for phone service, laundry, school lunchesSmart Cards- similar to ATM cards, embedded microchip stores prepaid amounts

Other Types of PaymentsCertified checks- personal check for which the bank has guaranteed paymentCashiers checks- a check that a bank draws on it own fundsTravelers checks- used for making purchases when you are away from home.Money orders- used by someone who does not have a checking account and needs to send a payment by mail. Can be purchased at a bank or post office

The Federal Reserve System

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The Federal Reserve SystemWhat is the Federal Reserve System?a centralized banking systemWhy does it exist?to supervise and regulate member banks and help serve the public efficientlyWho participates?All national banks are required to be members of the Fed; state banks have the option of joiningHow is it organized?Divided into 12 districts with a central Federal Reserve Bank in each district20What is the Federal Reserve System?The Federal Reserve (Fed) is a centralized banking system. Why does it exist?The Fed exists to supervise and regulate member banks and help serve the public efficiently.Who participates?All national banks are required to be members of the Fed; state banks have the option of joining. How is it organized?The Fed has 12 districts.The Federal Reserve System continuedServices provided by the Fed:Supervision of banksParticipation of open market activitiesActing as a clearinghouse Holding reservesApproving bank mergersSupplying paper currencyManaging the discount rate

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