Dr Moorman s Tips to Study Folks as you are studying keep these thoughts in mind for the final Chapter 5 is the review content Know the people the agencies who oversees what when did some of them begin what events lead to policy changes basically much of the same content from exam 1 For Chapter 13 saving and banking go through the book bold and marginal terms matter go through my notes be prepared to know what lead up to the banking crises across all of the decades beginning with the great depression the 1980s current recession What policies were in place what was changed what was removed how did housing auto and banking collide remember CAMELS not the hump day one but the banking one what does it mean know the scales who oversees banking now who oversees investing what huge impact did the FDIC have on banking behavior and consumer behavior know the names of the laws acts my notes are laid out chronologically and the exam will ask about that what happened in what order how does our behavior today internet banking impact what banks do today Read and re read the book notes its only 2 chapters so the questions are likely to be very very specific Chapter 13 Saving Banking Credit Debit Issues Chapter Preview In the US about 7 500 commercial banks serving the businesses and consumer s needs This puts the US in a class by itself In most other developed nations only a handful of banks dominate the landscape Roles of Banks in the Economy 1 Facilitate borrowing lending 2 Facilitate Payments 3 Risk Management o Issue financial assets that allow firms to share risks o Provide guarantees and lines of credit Financial Intermediaries Banks include o 1 Commercial banks o 2 Savings Loan Associations S L s Sometimes called thrifts or thrift institutions o 3 Credit Unions Ownership of Banks Most US banks are privately owned In most cases a bank s stock is held by a large numbers of investors so a bank has many owners It is relatively EASY to establish a new bank in the US Bank Market Structure There are a large number of banking firms in the US but the number is falling due to mergers between banks Thousands of US banks are very small each having only a single office Many banks today have multiple branches or offices A bank holding company is a firm that owns one ore more banking firms Historical Development of the Banking Industry 1782 Bank of North America chartered o Beginning of modern commercial banking industry 1791 Bank of the United States chartered 1811 Bank of the Unites States charter is allowed to lapse 1816 Second Bank of the United States is chartered 1832 Andrew Jackson vetoes rechartering of Second Bank of the United States charter lapses in 1836 1913 Federal Reserve Act of 1913 creates Federal Reserve 1933 Banking Act of 1933 Glass Steagall creates Federal Deposit Insurance Corporation FDIC separates banking securities industries Banking Act of 1933 Glass Steagall Glass Steagall allowed commercial banks to sell on the run government securities but prohibited underwriting and brokerage Also prohibited real estate and insurance business Did project commercial banks by not allowing other financial intermediaries to offer commercial banking activities Historical Development of the Banking Industry The history had one other significant outcome Multiple Regulatory System services Agencies o 1 Federal Reserve o 2 FDIC o 3 Office of the Comptroller of the Currency o 4 State Banking Authorities 3 Bank Products Savings Savings provide a safety net and are also helpful for putting together money for future needs such as a down payment on a house Emergency fund of 3 6 months of salary set aside as savings is recommended as a financial goal o Funds should be kept in a liquid interest bearing account such as a money market fund short term certificates of deposit CDs or a savings account Banks Financials Products Banks brokerage firms offer CDs with a maturity of at least 7 days with penalties on early withdrawals CDs type of time deposit are usually safe ways to store money from 7 days to several years Bank or credit card companies offer debit cards smart cards also called chip cards or stored value cards which may be worth 20 or 50 and can be used for placing phone calls or buying sodas or snacks from vending machines Financial Innovation 1 E Money o Electronic money or stored cash only exists in electronic form It is accessed via a stored value card or a smart card o E cash refers to an account on the internet used to make purchases 2 Electronic Banking this front o Automatic Teller Machines ATMs were the first innovation on Today over 250 000 ATMs service the US alone o Automated Banking Machines combine ATMs the internet and telephone technology to provide complete service o Virtual banks now exist where access is only possible via the internet 3 Electronic Payments o The development of computer systems and the internet has made electronic payments of bills a cost effective method over paper checks or money 4 E Finance Are we headed toward a cashless society Predictions of cashless society go back to decades o Business Week predicted e payments would revolutionize money itself but reverse itself later Things that work against this o 1 Equipment to accept e money not in all locations o 2 Security and privacy concerns Financial Planner person who looks at someone s or a family s total financial picture helps that person or family define and prioritize goals and then works out a plan to achieve those goals Divorce Planner specialist who is trained to focus on who gets the assets in divorces and who works alongside attorneys who handle legal documents and child custody issues Help couples divvy up retirement accounts and stock options divide up businesses calculate alimony payments and decide who keeps the primary house and vacation home New breed of financial planner Credit Loans Debt People borrow money through the use of credits and loans The buy now pay later philosophy is ingrained in American society Credit can be used for luxury items or for longer term investments such as education expenses Collateral property used to secure loan o This is what you own at the end of the loan OR o This is what you lose if you can t pay the loan off legal rights to take and hold property if the person does not Lien pay the debt o Example your house can have a lien put on it if you are not paying your car off When the house gets sols the car loan servicer gets paid before you make any money off the house