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Banking & Finance Chapter 1

Banking & Finance Chapter 1



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Banking01 Banking01 Presentation Transcript

  • 1 THE BUSINESS OF BANKING 1.1 Introduction to Banking 1.2 Role of Banks in the Economy 1.3 How the Banking System Works 1.4 Other Financial InstitutionsSlide 1 © South-Western Publishing
  • Lesson 1.1 INTRODUCTION TO BANKING GOALS Define the business of banking Identify trends in modern bankingSlide 2 © South-Western Publishing
  • WHAT IS A BANK? A bank is a business. Banks sell their services to earn money. Banks must earn a profit to survive.Slide 3 © South-Western Publishing
  • A UNIQUE BUSINESSThe services banks offer to customers have to do almost entirely with handling money for other people. Money is a medium of exchange—an agreed upon system for measuring values of goods and services. Money shows how much something is worth.A bank is a financial intermediary for the safeguarding, transferring, exchanging, or lending of money. An intermediary is a facilitator acting between parties. Banks facilitate the flow of money throughout our economy.Slide 4 © South-Western Publishing
  • TYPES OF BANKS Commercial banks Retail banks Central banksSlide 5 © South-Western Publishing
  • BANKING TODAY Traditionally, banking was viewed as a solid and slow-moving industry. Banking today is an exciting, fast-moving, around-the-clock, around-the-world activity.Slide 6 © South-Western Publishing
  • MERGERS A merger occurs when one or more banks join or acquire another bank or banks. Mergers increase the size of banks, giving them more resources. Mergers decrease the number of banks. Mergers have created an opening for a new wave of small local banks.Slide 7 © South-Western Publishing
  • TOP TEN LARGESTBANKS WORLDWIDE (Ranked by size of assets) Bank Country Mizuho Financial Group Japan Citigroup United States Deutsche Bank Germany JP Morgan Chase Co. United States Bank of Tokyo-Mitsubishi Japan HSBC Holdings United Kingdom Hypo Vereinsbank Germany UBS Switzerland BNP Paribas France Bank of America Corp. United StatesSlide 8 © South-Western Publishing
  • TECHNOLOGY Impact on bankers Accounting, auditing, and examining functions have been taken over by fast and efficient technology. Funds transfer, record keeping, and financial analyses have become instantaneous. Impact on consumers Automated teller machines (ATMs) “Smart” cards Online bankingSlide 9 © South-Western Publishing
  • COMPETITION As government regulations have changed, competition between banks has become fiercer. Banks compete with each other and with other businesses that sell financial services.Slide 10 © South-Western Publishing
  • Lesson 1.2 ROLE OF BANKS IN THE ECONOMY GOALS List banking activities that contribute to economic stability Explain how banking expands the economySlide 11 © South-Western Publishing
  • BANKS AND ECONOMICS Money is a medium of exchange and the basis of the modern economy. Banks and other institutions play a critical role in performing services that are essential to the functioning of an economy.Slide 12 © South-Western Publishing
  • KEEPING YOUR MONEY SAFE Record keeping Identification Enforcement Transfer security Sound business practicesSlide 13 © South-Western Publishing
  • SPREADING THE WEALTH Banks play a key role in transferring money to provide growth and stabilizing the monetary supply. Bank lending makes money available to consumers and businesses to make purchases they might not otherwise be able to make.Slide 14 © South-Western Publishing
  • TRANSFERRING Between banks Between banks and individual customers Between banks and industry Between banks and governments Between governmentsSlide 15 © South-Western Publishing
  • LENDING Loans to businesses Loans to governments Loans to individuals Credit cards Home loans Automobile loansSlide 16 © South-Western Publishing
  • CREDITWORTHINESS Evaluating the creditworthiness of customers is a banking function that affects the economy at large. Banking policies and regulations regarding creditworthiness and the ratio of loans to deposits help guarantee a secure financial environment.Slide 17 © South-Western Publishing
  • GUARANTEEING THE MONEY In the United States, banks and the government work together to form the banking system and to make sure the money supply is adequate, appropriate, and trustworthy. Much of this guarantee is backed through the central banking function of the Federal Reserve. Individual banks work with the government to implement monetary policy, perform exchange functions, and defeat counterfeiters of currency. Banks guarantee their own policies.Slide 18 © South-Western Publishing
  • THE SUBSTANCE OF SOCIETY A great part of the economic system is psychological. Banks are at the heart of our financial system, and their effect on your life cannot be calculated.Slide 19 © South-Western Publishing
  • Lesson 1.3 HOW THE BANKING SYSTEM WORKS GOALS Explain how banks acquire money to do business Identify new services that banks offer to stay competitiveSlide 20 © South-Western Publishing
  • MONEY AT WORK Banks earn money in various ways. Most of their income comes from the interest that people or businesses pay as they repay a loan. When banks lend money, they put it to work.Slide 21 © South-Western Publishing
  • THE SPREAD The difference between what a bank pays in interest and what it receives in interest is called the spread, or net interest income. The spread is not pure profit. The spread is income, or revenue. Profit is what is left of revenue after costs are deducted.Slide 22 © South-Western Publishing
  • OTHER FUNDS In addition to interest income, banks have other sources of income. They charge for various services such as rental of safe-deposit boxes, account maintenance fees for checking accounts, fees for online bill payments, and ATM transaction fees. Banks make money on investments. Banks may have funds at their disposal from stockholder investments.Slide 23 © South-Western Publishing
  • ASSETS AND LIABILITIES An asset is anything of value. In financial terms, that usually means money. A liquid asset is anything that can readily be exchanged, like cash. A liability, in financial terms, is a cash obligation.Slide 24 © South-Western Publishing
  • TWO PRINCIPLES OF BANKING A bank’s liabilities exceed its reserves. A bank’s liabilities are more liquid than its assets.Slide 25 © South-Western Publishing
  • BANKS WORKING FOR YOU Banking has changed radically in the last 20 years. Large regional banks have huge resources. Smaller banks use the flexibility that sometimes comes with smaller size to their advantage.Slide 26 © South-Western Publishing
  • CHANGES IN TRADITIONAL SERVICES Branch locations Extended hours Drive-up windows Variety of checking accounts Savings options Personal serviceSlide 27 © South-Western Publishing
  • NEW SERVICES Credit cards Innovative lending Automated teller machines (ATMs) Smart cards Online bankingSlide 28 © South-Western Publishing
  • Lesson 1.4 OTHER FINANCIAL INSTITUTIONS GOALS Explain depository financial institutions Explain nondepository financial institutionsSlide 29 © South-Western Publishing
  • TYPES OF FINANCIAL INSTITUTIONS Depository intermediaries Obtain funds from the public Use the funds to finance their business Nondepository intermediaries Do not take or hold deposits Earn their money by selling specific services or policiesSlide 30 © South-Western Publishing
  • DEPOSITORY INTERMEDIARIES Commercial banks Savings and loan associations Mutual savings banks Credit unionsSlide 31 © South-Western Publishing
  • NONDEPOSITORY INTERMEDIARIES Insurance companies Trusts companies/pension funds Brokerage houses Loan companies Currency exchangesSlide 32 © South-Western Publishing