Federal Reserve System
(Fed) is a centralized banking system;to supervise and regulate member banks and help serve the public efficiently.
Earns money to finance their business by accepting deposits from customers
which offer many different services, including savings, loans, and checking accounts.(bank of america; wachovia; etc)
Savings and Loan
which traditionally specialize in savings and home loans, but now are very similar to commercial banks.
Mutual Savings Bank
which are owned by the depositors and specialize in savings and home loans.
which are not-for profit, serve their members only, and are owned by their depositors.
Earns money to finance their business by selling specific services such as policies, investments, and loans
a bank account against which the depositor can drawn checks payable on demand
allows the payee to cash the check, deposit the check or transfer payment of the check to someone else.
(Consists of endorser's name only)
Anyone who has a check with a blank endorsement may cash it.
Limits use of the check so it can be deposited only to endorser's account; "for deposit only"
Transfers payment of a check to someone else; "pay to the order of" followed by person/business to whom payment of the check is being transferred, followed by your signature
the document created to show how the two balances (your own record of your checking account and the bank's record of your account) were brought into agreement.
Stop payment order
a written notice that tells the bank not to pay a certain check
a card with your name, address, and authorized signature of a bank customer
a person to whom a check is written
checks that have been written but not been deducted from the bank statement balance.
AN ACCOUNT OWNED BY TWO OR MORE PEOPLE
Federal Deposit Insurance Corporation (FDIC)
Federal agency that helps regulate banks and other financial institutions; insures all accounts in the same name at the bank up to $100,000
Person who owns the checking account and signs the check
financial institution that pays the check
A slip of paper kept by the bank to show how much money you put into your account.
Like a credit card, but directly attached to a checking account, and can be used with a pin to pay for items at a store.
The book in which you keep records of checks, deposits, debit card transactions, and atm withdrawals.
monthly printout from your bank that shows all transactions in your account
Financial institutions that do not take or hold deposits, but earn their money by selling other financial services (life insurance companies, investment companies, consumer finance companies, mortgage companies, check-cashing outlets, pawnshops
Comparing financial institutions
Services offered, safety, convenience, fees & charges, restrictions
Electronic funds transfer (EFT)
Use of computers and other technology for banking services (ATM's, direct deposit, etc.)
Safe deposit boxes
located in bank vaults and used for storage of valuables
Investments or property managed by the bank on behalf of customers; especially useful for young people and the elderly
First step in writing a check
Record the check in the check register
Checks that have been paid by the bank
Personal check for which a bank has guaranteed payment
Check written to a business or individual purchased by a customer and drawn on the bank's own funds; more acceptable than a personal check
Special forms that can be purchased which are designed for making payments when away from home
Form of payment that orders the issuing agency to pay the amount printed on the form to another party; can be used by individuals who do not have checking accounts to make payments
Fed service: Supervision of Banks
Sets limits for loans and investments by member banks
Approves bank mergers
Inspects banks yearly through auditing financial records
Sets standards for consumer legislation
Fed service: Participation in open market activities
If the economy is growing too fast and inflation threatens, the Fed sells securities from its own portfolio holdings.
a. In exchange for the securities, the Fed receives dollars, and holds on to them, thus taking money out of circulation. (Too much money in circulation is one thing that causes inflation.)
If the economy is in a slump, the Fed may decide to buy back government securities, thus putting money back into circulation.
a. The money is spent by consumers and businesses, which helps the economy
Fed service: Acts as a clearing house
Acting as a clearinghouse
Clears checks between banks that are located in different Federal Reserve districts
Processes automated clearinghouse (ACH) electronic payments
ACH payments, which are cheaper to process than checks, are used for direct deposit of payroll and consumers use ACH transfers to pay insurance premiums, mortgages, loans, and other bills.
Fed service: Holding reserves
Determines the percent of total deposits that must be held either in cash in the bank's own vault or as a deposit in the bank's district Federal Reserve Bank
A. If the Fed wants to slow the economy, it will increase the reserve requirement, meaning banks must keep more of their deposits instead of lending the money to businesses and consumers.
(1) When lending slows down, there is less money for consumers/businesses to borrow and spend.
B. If the Fed wants to stimulate the economy, it will lower the reserve requirement, allowing banks to lend more of their deposits.
Fed service: Managing the discount rate
The Discount Rate is the rate of interest the Fed charges its member banks
Lower rates encourage borrowing, and higher rates discourage borrowing.
Banks pass on lower/higher rates to its customers.
a. Higher rates, less lending, slows economy and inflation potential
b. Lower rates, more lending, stimulates economy, consumer and business spending
Fed service: Supplying paper currency
All currency, or dollar bills of all amounts, are Federal Reserve Notes.
Federal Reserve Notes are printed by the Bureau of Printing and Engraving.