Banking Chapter 1 Textbook

Trust Companies/ Pension Funds:

Companies that administer pension or retirement funds also perform financial services. These companies manage money for a fee and promise in return to provide future income. Some pension funds are closely regulated, but others may not be. Growth for the contributor comes not from interest on deposits, but investments made by the administrator. These investments may yield a profit, but there is a risk of loss as well.

Savings and Loan Associations:

Savings and loan associations (S&Ls) may go by various names. Building and loan associations, homestead banks, and cooperative banks are all names for savings and loan associations. Savings and loan associations receive most of their deposits from individuals. Chartered by either state or federal governments, these institutions grew by focusing on real-estate lending for people. Today they offer most of the same services as commercial banks. Savings and loan associations are owned not by outside investors, but by depositors themselves, who receive shares of the company.

Spread:

The difference between what a bank pays in interest and what it receives in interest is the spread, or net interest income.

ROE represents the?

amount or return earned on each dollar invested.

Money is a medium of exchange:

an agreed-upon system for measuring the value of goods and services.

Banking is a business, and as with any business, competition is?

an ongoing challenge.

Payroll cards:

are a specific type of smart card. Banks can facilitate salary payments between employers and employees. By using a bank as an intermediary, payroll cards enable an employer to load salary payments onto an employee's smart card. Employees can then access their pay even if they do not have a bank account.

The bank charges more interest on the money it lends than it pays ?

depositors, so when the money is repaid, more comes in than went out.

If you write a check or schedule a payment from your account through online banking, you can be sure the recipient of the check or payment will get ?

his or her money from your bank, provided you have sufficient funds in your account to cover the payment.

Investors can compare a bank's ROA and ROE to those of other banks to see?

how it performed relative to the other banks.

U.S. commercial banks actively seek international business, putting together what?

huge investment transactions overseas and engaging in investment banking prohibited in the United States.

Transferring money to provide growth and stabilizing the monetary supply are?

important functions performed by banks.

Home loans are an important part of the banking business, too. Loan decisions need to be made?

in a healthy, rational way to borrowers who are qualified for the loans they obtain.

Opportunities to handle money more efficiently and effectively for both are:

increasing, and they offer possibilities unimagined just a few years ago. -They also require a thorough understanding of how the system and its tools work, and how money moves in an increasingly complex economy.

Banking is an international business as well, and it is becoming more so all the time. Technology has allowed?

instant communication as well as transfer of funds, so barriers of geography apply less than ever.

Faulty Investment Strategies: A problem for banks has been faulty investment strategies. Especially in?

international banking, some banks have invested substantial amounts of money in questionable businesses or complicated financial products. If those businesses fail, the banks don't get their assets.

A crisis in the U.S. mortgage lending markets, which began in the summer of 2007, impacted foreign investors with?

investments in the mortgage market.

Banks, like people and other corporations, make money on?

investments. .

Return on assets (ROA):

is the ratio of net income to total assets. It indicates how well bank management used its total amount of assets (loans and investments) to earn income. ROA is also interpreted as the amount earned for each $1 in assets.

Record keeping is an important part of?

securing your money. -Banks devote much time and attention to both the practice and technology of maintaining and storing accurate records. -If banks expect you to let them hold and use your money, they know you expect them to keep careful track of it. -The same principle applies to large transactions between banks and industry and between banking institutions and the government.

Especially since the early 1980s, banks have become large and careful investors in some types of?

securities and government bonds

In the first quarter of 2008, fraudulent investments by a trader at a French bank resulted in a massive?

sell-off of faulty investments that impacted international financial markets.

The brick and mortar banking model, while certainly valuable, is being complemented by?

serious advancements in technology.

Banks are more sales oriented than ever, with an emphasis on ?

service, innovation, and marketing that could scarcely have been imagined 30 years ago.

Banks encourage deposits by ?

protecting the money and by paying the depositor interest, a percentage of revenue earned on the principal over a period of time. -The depositor thus earns some money from the deposits.

Deposits may have to be returned any time, but assets can arrive in?

small amounts over a long period.

Money simply shows how much?

something is worth, whether it is a new stereo or two hours of your labor.

Lending by banks makes money available to consumers and businesses to make?

purchases they might not otherwise be able to make, or at least not for a very long time.

Changes in regulation, changes in technology, and changes in competition have pushed banking, like most other businesses, to become organizations that must do what?

respond rapidly to changing business conditions in order to survive.

Around the world, however, banks are supervised by governments to guarantee the?

safety and stability of the money supply and of the country.

Roman soldiers were sometimes paid in?

salt, because it was critical to life and not easy to get. -The word salary and the expression not worth his salt come from that practice.

These institutions help customers do what?

save money, acquire loans, and invest.

Because most banks are corporations, banks may have funds from?

stockholder investments to use.

ROA and ROE are of particular interest to ?

stockholders (investors).

In the farranging and fast-moving world of banking, what is required?

strong management skills and a thorough understanding of finance are required.

Mergers:

A merger occurs when one or more banks join or acquire another bank or banks.

Long before banks existed, people looked for ways to?

secure their valuables, whatever the medium of exchange. -In some societies, such as Babylonia about 2000 b.c., people began to store money in temples, perhaps because they thought others would be less likely to steal from houses of gods. -Ancient records indicate that about 4,000 years ago temples were in the business of lending and exchanging money. At that time, temples were acting as banks.

Financial institutions are required by the U.S. government to know?

their customer. -The Customer Identification Program (CIP) was implemented in 2003 as part of the USA Patriot Act.

For banks, deposits are liabilities. Depositors have the right to request?

their funds, and the bank must pay them.

ROA Example:

As an example, Hometown Bank (HB) has net income of $10,000 ($220,250 revenue − $210,250 in expenses). HB has total assets of $171,500 and total liabilities of $100,000. HB's ROA is calculated using net income from the financial statement as follows: Net income ÷ Total assets = Return on assets $10,000 ÷ $171,500 = 0.058 or 5.8% ROA (5.8 cents on the dollar)

Institutions are required to develop a CIP process that is appropriate to?

their size and incorporate it with the institution's Bank Secrecy Act/Anti-money laundering compliance program.

Whether customers are new to the institution or currently existing, the bank employee must verify?

their true identity when the customer is opening a deposit account or applying for a loan.

Much of this guarantee is backed through the central banking function of the?

Federal Reserve.

Innovative Lending:

New types of lending are also made available to consumers.

Technology Tools:

Probably the flashiest new services banks offer involve technology. The revolution in computers and telecommunications affected banks dramatically and helped drive a reliance on Internet-based transactions. New and expanded services based on a blend of technologies are now available.

Marketing is an ever more important matter to banks in today's environment. Bank personnel often become experts in certain services, and selling is now?

a critical component of any banker's job. -Sales is all about relationships. -Product knowledge is key (after all, you can't sell what you don't know) but relationship-building is paramount. -If you, as a banker, are not dedicated to building long-lasting relationships with your customers, then someone else will—and it's usually your competition.

Once, and still in some places today, precious stones, animal products, or other goods of value might be used as?

a medium of exchange.

Many bank deals are more complex than automobile or home loans. In fact, banks lend money to businesses and governments in?

a wide variety of ways, with loan duration ranging from a single day to decades.

Lending makes up most of?

a bank's business.

They also offer a wide range of financial services to?

a broad customer base.

With the increased reliance on the Internet for financial transactions, identity theft protections extend beyond?

conventional checking accounts to include online banking, automatic bill pay, and online shopping.

In the United States, all federally chartered banks have been required to be?

corporations since 1863.

Banks are critical to the?

economy.

There are four main types of:

depository institutions. -Although there are fewer differences today than in the past, some important distinctions remain.

Banks are usually corporations and may be owned by?

groups of individuals, corporations, or some combination of the two.

In many ways, banks are like other businesses that must do what?

earn a profit to survive.

Banking today is not as simple as?

earning interest on the spread. Rapidly changing conditions, complex factors, a 24-hour-a-day global economy, and financial interdependency among nations set the banking climate.

The services banks offer to customers have to do almost entirely with?

handling money for other people.

Mobile banking:

has grown in popularity as reliance on sophisticated cell phones and related technology has grown. Consumers can execute a variety of banking transactions on their mobile devices, such as check account balances, make requests for payments, deposit checks, and even receive updates regarding their accounts.

These variable rates are often indications of the strength of a nation's?

economic position.

Smaller banks that target particular consumers work in a ?

niche market, a specific customer base in a defined location that wants particular services. -They use the flexibility that sometimes comes with smaller size to their advantage.

A few states permit what ?

noncorporate banks, which are owned by partnerships or individuals.

Mergers also decrease the ?

number of banks.

Charges include fees for:

rental of safe deposit boxes, checking account maintenance, online bill payment, and ATM transactions.

Of the various profitability tests, two commonly used are ?

return on assets and return on equity.

Stockholders buy bank shares, hoping to receive a ?

return on them and get a say in how the bank does business.

Depository intermediaries receive deposits from customers and use the money to do what?

run their businesses. -These institutions may have other sources of income, but the bread and butter of their business is handling deposits, paying interest on them, and lending money based on those deposits.

A bank is a financial intermediary for the:

safeguarding, transferring, exchanging, or lending of money.

Reverse mortgages allow consumers age 62 or older to utilize the?

equity from their homes by receiving payments from a lender based on the value of the equity. These payments can be received either in monthly installments, in a lump sum, or as a line of credit. Typically the equity does not need to be paid back until the home is sold.

Although there are many ways that money moves around the economy, banks play a central role in?

establishing the financial environment.

Banking used to be thought of as a solid and slow-moving industry. Banking today is an ?

exciting, fast-moving, around-the-clock, global activity.

With capital to invest, businesses can do what?

expand, job creation occurs, products get manufactured, services are performed, and the economy grows.

If banks were to overextend themselves with uncollected loans, they could begin to?

fail, and if they fail, the economy is at risk. -Bank failures played a role in the Great Depression. -The mortgage loan crisis, which began in the summer of 2007, pushed the American economy into a recession. -Banking policies and regulations regarding creditworthiness and the ratio of loans to deposits help guarantee a secure financial environment. -These policies also assure that businesses get paid for the things that consumers buy with bank funds.

Without bank lending, the cycle would be ?

far smaller and slower. -The automobile and housing industries have grown hand in hand with a solid banking industry, and the American economy has grown with it.

In the United States, banks may be chartered by ?

federal or state governments.

After a merger, some consumers face higher? and find less what?

fees and find less community involvement and lending in local areas. -People like to feel that their money is staying home.

As government regulations have loosened, competition between banks has become?

fiercer.

-Identity theft occurs when someone achieves ?

financial gain by using another person's personal information to unlawfully assume the identity of the other person.

As the mortgage crisis escalated, the ripple effect of loan defaults were seen in all areas of the economy—

from the impact on the personal lives of individual homeowners, to businesses that did not get paid, to municipalities that were faced with bearing the costs of maintaining the safety of abandoned properties.

ROA measures how efficiently the bank is using its assets to ?

generate revenue

A creditworthy customer has a?

good credit rating, sufficient collateral for loans, and an ongoing income source sufficient to make timely loan payments.

The speed of modern communication allows banks to move their investments quickly if necessary. Even a day or two of a large investment can yield a ?

good return. Professional investment staffs work hard to make every dollar return a profit in the financial market.

A bank is a?

business. -Banks sell their services to earn money, and they market and manage those services in a competitive field.

In international banking, exchange rates measure the relative strength of?

one form of currency against another.

Information from financial statements, which report a bank's assets, liabilities, and net income, can be used to determine?

its profitability—a necessary condition for survival.

Money the bank borrowed is also a ?

liability, a debt to be paid.

Evaluating the creditworthiness of customers, whether they are large industries, governments, or individual consumers, is a critical banking function that?

affects the economy. -It is a good business practice for banks to evaluate loan applications carefully because their profits, and in some cases their survival, depend upon being repaid the principal and the interest from loans.

When you have money, a bank can act as your?

agent for using or protecting that money.

Banks also help determine the?

creditworthiness of prospective customers so that good money is not lost on bad loans.

Central banks issue what? and conduct what?

currency and conduct monetary policy.

A person who puts money into a bank is called a?

depositor.

The mortgage loan crisis that began escalating in the summer of 2007 illustrates the fundamental importance of a?

healthy, stable mortgage market in the U.S. economy.

one consequence of the Great Depression of the 1930s was heavy?

regulation of banking. -Banks could earn high profits simply on the spread because there were fewer financial options for consumers.

High interest rates in the 1970s resulted in much?

"disintermediation." - In the early 1980s, interest rates rose for all types of debts and investments. -Banks were still paying only 5½ to 5¾ percent, as prescribed by law. -Consumers, who could get 10 to 14 percent on other investments such as mutual funds, began removing their money from banks or depositing it elsewhere. Some banks (primarily savings and loans associations) had trouble, and with their problems the American economy was at risk.

Since the deregulation of banks in in the 1980s, there has been a blurring of the line between ?

"pure" banking and other providers of financial and investment services.

If you borrowed $5 from a friend for lunch, you have a liability of?

$5 and your friend has an asset of $5. -The asset's liquidity depends on how quickly you've agreed to repay the sum and how reliable you are.

Because banks have more money out working than they keep on hand, two principles of the banking business come into play.

A bank's liabilities exceed its reserves. The money is loaned out, and the reserves don't match the total of deposits (liabilities). However, the money is out working, financing businesses and expanding the economy. • A bank's liabilities are more liquid than its assets. A bank must give depositors their money if they request it. The bank's assets, however, may be less liquid because they are tied up in longer-term loans, so the bank can't get them as quickly. If many depositors need their money at once, the bank must either break its promise to depositors or pay until its reserves are gone. If the bank fails, unpaid depositors lose their money. In the United States, deposit insurance, backed by the government since 1934, has kept people from fearing the loss of their deposits. A "run on the banks," when people call for their money all at once, is rare.

Payday Loans:

A specific form of loan company focuses on payday loans. These companies offer extremely short-term loans against an expected paycheck or other check with high interest rates and fees. Other names for these loans include deferred deposit check loans, check advance loans, or post-dated check loans. Payday loans usually require an upfront fee that is immediately deducted from the loan amount. Exorbitantly high interest rates are common for payday loans. Although disclosure of the effective annual percentage rate (APR) is required by law, consumers who utilize this type of loan may not fully understand the financial consequences of using this type of financing. Many online sites are available to facilitate obtaining payday loans. Many even sweeten the offer by providing direct deposit of the loan to a consumer's banking account. However, these same loan providers often require authorization for automatic withdrawal of the funds from the consumer's bank account on a predesignated date. These companies also may perform some of the same services as currency exchanges.

Nondepository Intermediaries:

As the name suggests, nondepository intermediaries don't take deposits. Instead, they perform other financial services and collect fees for them as their primary means of business. In many cases, these institutions are private companies. Although they may be regulated by the government, they are usually not backed or protected by the government.

Credit Cards:

Banks (or their holding companies) are facilitators in the credit card business in a big way. This profitable field is a form of lending that has greatly expanded in the last few years. Some economists worry that the growth in this business comes at the expense of saving, perhaps a recipe for long-term trouble. Still, banks compete fiercely for this business and offer varying forms and types of credit-card accounts. Many banks change or negotiate rates with consumers, and special low-rate promotions are offered daily.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the?

Consumer Financial Protection Bureau which has taken primary jurisdiction for consumer protection. You can see how these various ways of safeguarding your money work together within the local bank and the banking community at large to create a more secure financial environment. This system of checks and balances is important to the economy and to society.

Credit Unions:

Credit unions also are owned by depositors, but there are a couple of key differences. First, users of credit unions must be members. Membership is usually based on some type of association, such as a common employer, a certain line of work, a geographical region, or even a social or religious affiliation. Second, credit unions are not-for-profit financial institutions that exist to benefit the members. Any money beyond costs is returned to the members in the form of dividends on savings, reduced fees for services, or lower rates for loans.

Currency Exchanges:

Currency exchanges do not make loans or receive deposits. Currency exchanges are private companies that cash checks, sell money orders, or perform other exchange services. They charge a fee, usually a percentage of the amount exchanged. Because their business depends on these fees, interest rates are usually higher than at banks or other financial institutions. Currency exchanges often locate in areas where no other financial intermediaries exist, and they offer the only financial services available to people in those areas. A wide range of financial services is available from both depository and nondepository intermediaries. Most of the nondepository institutions are private companies earning money by performing specific services. You don't make deposits, earn interest, or have checking or savings accounts with them. Nondepository institutions are a part of the financial world and help move money through the economy. However, they are not part of the banking system and may not really be considered to be in the business of banking.

Loan Companies:

Loan companies, sometimes called finance companies, are not banks. They do not receive deposits, and they should not be confused with banks, savings and loan associations, or credit unions. They are private companies who lend money and make a profit on the interest. Loan companies sometimes make loans to customers when other institutions will not, but they charge higher interest rates to offset the risk.

Sound business practices also safeguard your money.:

Most of these involve good judgment and management of daily bank operations. Banks invest time and money to train employees in procedures and practices. Training goals include ensuring accuracy, encouraging good decision-making regarding creditworthiness of perspective customers, and teaching how to make sound financial decisions.

Mutual Savings Banks :

Mutual savings banks are similar to savings and loan associations. They receive deposits primarily from individuals and concentrate also on private real-estate mortgages. Mutual savings banks are owned by depositors as well. These state-chartered banks are sometimes granted greater powers with regard to assets and liabilities than S&Ls, but usually not as much as those of commercial banks. Mutual savings banks and savings and loan associations are sometimes called thrift institutions. Few remain as a result of a crisis in the industry in the 1980s. These institutions are regulated and protected by the state or federal government, which is not necessarily true of nondepository intermediaries.

Commercial Banks:

One of the big distinctions between commercial banks and other depository institutions is that commercial banks are owned by stockholders who expect a profit on their investments. Today commercial banks may work with both businesses and individuals. A commercial bank that specializes only in business banking is sometimes called a wholesale bank.

New Services:

One of the biggest effects of deregulation was that banks got into new areas of business. Banks began offering financial services such as innovative lending options and technology-related services.

What happens to your prior deposits if after two months a tree falls on your roof and you need to withdraw your $10,000 savings?

The deposit you made created the liquidity and source of funds from which the bank uses to lend money. From this source of funds, the bank has loaned it to another homeowner, but it must have reserves to meet the obligation of your $10,000 withdrawal. I t's not really the same money. The bank has other depositors, not all of whom, the bank hopes, need their money at the same time. Even if they did, the bank has a backup, the Federal Reserve System.

Cost:

The difference between profits and spread is cost.

Why aren't deposits themselves a form of bank income?

The money in them doesn't really belong to the bank.

Federal and/or state bank examiners closely review the records of banks to protect consumers.:

Their examinations include not only the accuracy of records but also the prudence of banks' policies. These thorough examinations may take a week or more for a small bank, and a much longer time for a larger institution.

What happens if a homeowner can't repay a loan?

With the loss of these funds, the bank loses the ability to earn money on the loan.

Insurance Companies:

You might not think of insurance companies as financial institutions, but they are. I nsurance companies make money on the policies they sell, which protect against financial loss and/or build income for later use. The policies are not tangible and the protection they offer is financial, so the companies are performing a financial service. Some types of insurance policies have a cash value that can be redeemed at any time, and some policies let customers remove cash gradually. Although insurance companies do not typically make loans, in some cases the cash value of a policy may be used to secure a loan from elsewhere. Insurance premiums (costs) are not deposits. Private insurance companies try to earn a profit from the premiums beyond the cost of insurance payouts. Many professional money managers regard insurance as essential financial protection, but not a good investment.

Small banks have doubled the?

amount loaned to businesses in the last decade.

Retail banks:

and other thrift institutions such as mutual savings banks, savings and loans, and credit unions, developed to help individuals not served by commercial banks.

Historically, commercial banks offered their services only to businesses. Today, commercial banks seek the business of?

any worthy customer.

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.

Smart cards:

are credit, debit, or other types of cards that have embedded microchips. Smart cards are useful for a wide variety of "electronic purse" applications, which allow the card to store a value. When the card is used, the stored value decreases. You may have used these already in grocery or retail stores. Gift cards, security cards, and customer loyalty reward cards are also examples of smart cards. Consumers should use smart cards cautiously. According to The New York Times, since 2005 $41 billion in money on gift cards has been lost or is likely never to be cashed in. The lion's share of money lost on gift cards from 2005 to 2009 came from fees and expiration dates. All that changed with the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009. The Act largely forbids fees on cards sold by retailers (cards given away as promotional items can still charge fees), and it prohibits expiration dates less than five years after the card is purchased.

Using the accumulated funds of many depositors, the bank makes loans to customers who?

are likely to repay those loans.

Central banks:

are the government banks that manage, regulate, and protect both the money supply and the banks themselves. In the United States, the Federal Reserve System performs the central banking function. Although the Federal Reserve is technically owned by the banks themselves, the Board of Governors is appointed by the President with the consent of the Senate. The President also selects the powerful chair of the Federal Reserve.

Commercial banks:

are the institutions commonly thought of as banks.

-Nondepository intermediaries:

are those that do not take or hold deposits. They earn their money selling specific services or policies.

-Depository intermediaries:

are those that get funds from the public and use them to finance their business.

Innovations such as drive-up windows with extended hours took on more importance as banks scrambled to?

attract customers. -Many banks are now open six days a week, and bank operations at many locations run 24 hours a day, seven days a week.

This is not only due to mergers but to what as well?

bank failings as well. -More than 500 banking institutions have failed since the banking crisis of 2007. -Another 900 banking institutions have disappeared due to mergers creating a lot less competition for those assets.

Safeguarding the holdings of people may be the oldest?

bank function.

Technology's changes are not limited to bankers, either. Consumers' relationships with their banks have changed also. Gone are the?

banker's hours of 9:00 a.m. to 3:00 p.m. -Today's consumers want instantaneous access to banking services just as they do from other businesses.

Central banks serve as the government's?

banker.

-High-tech security measures are increasingly more critical to?

banking operations between banks and customers, between banks and banks, and between banks and the government. -As all financial intermediaries become more dependent on electronic banking, technological security takes a on a more significant role.

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.

Perhaps no business has been more affected by the growth of computers and telecommunications than ?

banking.

Banks move money. They move it between:

banks, between banks and individual customers, between banks and industry, between banks and governments, and sometimes the sums involved are huge.

Mergers increase the size of?

banks, giving them more resources.

This motion of money throughout the nation and the world allows businesses to have access to?

capital.

A liability, in financial terms, is a ?

cash obligation.

The new services and the new environment for banking offer both?

challenges and rewards to consumers and bankers alike.

Commercial banks provide familiar services such as :

checking and savings accounts, credit cards, investment services, and others.

Because banks and money are essential to maintaining not only economies but entire societies, they are?

closely regulated and must operate by strict procedures and principles.

Banks are larger and ownership is?

concentrated.

A bank's ratios that decrease or stay the same are cause for ?

concern.

A healthy housing economy provides jobs for people who?

construct, furnish, and repair homes. -Workers in construction industries want homes built, furnished, and repaired for themselves, and so the cycle of economic activity expands.

One of the most obvious changes in banking was a new focus on ?

consumers. -Banks were not as customer-oriented as they are now and advertising was far different. They often kept the so-called "banker's hours" of 9:00 a.m. to 3:00 p.m., were closed on Saturdays and Sundays, and were sometimes closed Wednesdays.

In addition, many banks have opened branches in retail stores and shopping centers, making it more?

convenient for consumers to access their services.

Changes in traditional services may help?

keep customers. -These are the promotions you may often see in banking advertisements today. -Several types of checking accounts, for example, are typically available at a single institution, as banks tailor their offerings to match consumer needs. No-cost checking above a minimum balance, overdraft protection, interest-bearing accounts, no-frills checking accounts, or a custom-tailored mix of features let customers pick an account to suit their wishes and balances. -Traditional savings accounts still exist too, but so do other savings options. A variety of ways to compound interest maximizes the money customers can earn, or they may place funds in special accounts, such as money-market accounts that may offer higher interest rates.

For their services, banks earn money in various ways. Banks also have income from other sources, but most of their money comes from :

lending—or, to be more precise, the loan interest paid by borrowers.

A bank's assets are its:

loans and investments, which may be less liquid by contract than deposits.

People want to own their own homes and will work hard to do so. Matching appropriate loans to qualified buyers facilitates?

long-term home ownership.

That way of doing business is a fading memory, as banks keep doors and windows open ?

longer and have branches in more places than ever.

Costs include:

maintaining the security of your money, personnel expenses, building maintenance costs, and so forth.

As financial institutions try to attract new customers, they continue to find ways to do what?

make their loan products more attractive. For example, 40-year fixed-rate mortgages and 15/15 adjustable rate mortgages (ARM) may be offered to customers. The 15/15 ARM has a fixed rate for the first 15 years, and then it adjusts once and is fixed for the remaining 15 years. This is a great product for someone who doesn't think they will be in a house for longer than 15 years.

A variety of loan products provide?

many choices for banks to transfer money in the economy.

Anything with an agreed-upon value might be a?

medium of exchange.

Banks distribute the?

medium of exchange.

This fact has resulted in what?

mergers and decreasing numbers of banks, but it has also made more services available to consumers, as banks compete to earn customers' financial business.

One of the most significant changes in banking in the last 20 years has been the number of?

mergers.

The effects of mergers have been?

mixed.

This large-scale transfer of assets is a feature of the?

modern economy particularly in an age of fierce competition and globalization. Industries seek out financing wherever they can find it, and banks seek out investment opportunities wherever they may be.

Individual banks also work with the government to implement?

monetary policy, perform exchange functions for citizens, defeat counterfeiters of currency, and prevent identity theft.

They want access to their?

money and account information at any time.

It is important to note that banks do not earn interest on?

money kept on hand for services such as ATM transactions. Thus, banks charge fees to offset lost interest. To keep pace with the rising cost of servicing accounts, fees for services have increased significantly. These service fees provide substantial revenues for banks.

When banks lend money, they put it to work. The money that people borrow goes to buy?

products or services, to manufacture goods, and to start businesses. -In this way, the money that banks lend works to keep the economy going.

The spread is not pure?

profit.

The functions that banking institutions perform do more than?

move money through the economy. -They also provide a common system. -A great part of an economic system is psychological. -It is your belief and trust in the financial system that makes you willing to borrow and pay later for a car, to invest money in businesses you've never seen, to deposit money in banks that is in turn loaned to people you don't know, or to take on a 30-year mortgage. -Banks are at the heart of this financial system, and their effect on your life cannot be calculated.

Transfer security is important to banks.: Although cash is still an important part of bank transactions, most money moves how?

moves electronically.

Fewer banks control more and more of the?

nation's money.

The Unites States uses GAAP (generally accepted accounting principles), which reports only?

net derivative positions, while the rest of the world uses IFRS (international financial reporting standards), which reports gross derivatives.

Automated teller machines (ATMs):

networked computers that allow access from around the world, "smart" cards with embedded microchips, online and mobile banking via the Internet and cell phone, and the ability to deposit a check remotely (remote deposit) are some of the technological innovations changing the face of banking.

Mergers also created an opening, though, for a?

new wave of small local banks.

Banks are required by law to offer their products and services on an equal opportunity basis. According to the Federal Trade Commission, the Equal Credit Opportunity Act (ECOA), and the Consumer Financial Protection Bureau ensures that all consumers are given an equal chance to?

obtain credit. This doesn't mean all consumers who apply for credit get it. Factors such as income, expenses, debt, and credit history are considerations for creditworthiness. What the law guarantees is that all applicants be treated fairly. Applications for credit cannot be evaluated on the basis of gender, race, marital status, national origin, or religion.

A series of laws passed in the early 1980s loosened the restrictions on bankers and let them compete in the?

open market like other financial businesses. -This loosening of government control, called deregulation, changed the banking environment in the United States completely.

Banks compete not only with other banks, but also with?

other businesses that sell financial services, such as credit unions.

Because banks can at times invest large amounts of money, they can do well, but they face the same risks as?

other investors.

Banks have, in essence, revolutionized their?

own industry. -In the last 20 years, banks have successfully implemented technology that will forever change the day-to-day business of banking. -Everything from instant-issue debit card machines, more sophisticated online platforms, mobile banking, and Remote Deposit Capture machines, to name a few.

Online banking:

takes advantage of growing Internet use. online banking allows customers to perform banking transactions from their home computers. Everything from balance inquiries to bill paying to applying for a loan may be available online at any time. Some banks use Internet technology in intranets, and others simply provide a dial-in service to their mainframe computer. Online services can be complicated and costly to set up, and some consumers are not comfortable using computers for private matters such as banking. The future is bright for online banking, though, as security systems improve, software applications become more sophisticated, and a new generation of customers comfortable with the technology matures.

-Identity theft is a growing concern in the economy, and bank officials work closely with?

technology experts and law-enforcement agencies to prevent various forms of it.

The top ten largest banks in the world in 2015 include two banks from?

the United States.

Credit cards issued by banks are another form of lending, and they are not only good business for the bank, but they also help ?

the economy. -People buy goods and services with credit. -This keeps merchandise moving and manufacturing producing at a more rapid rate than if transactions had to take place in cash. -Although there is risk in the unwise use of credit cards by consumers, the judicious use of credit stimulates the economy.

The government guarantees the value of money, and the banks back up?

the guarantee.

Banks provide a multitude of financial services beyond the traditional practices of holding deposits and lending money. Consequently, not only has banking changed considerably, so have?

the people who work in the banking world.

Not only have accounting, auditing, and examining functions been taken over by fast and efficient technology, funds transfer, record keeping, and financial analyses have become instantaneous because of what?

the powerful tools now available.

The U.S. uses a different accounting method than?

the rest of the world for total assets.

A bank is a financial intermediary for?

the safeguarding, transferring, exchanging, or lending of money.

The ability to transfer sums of money between financial institutions safely and effectively depends on:

the stability of the institutions, the stability of the countries where the banks reside, and the security of the money supply itself.

Home equity loans have become quite popular. Home equity loans are secured by the difference between?

the value of a home and the amount the homeowner still owes on it. -The loans may take the form of a special credit card, a line of credit, or a single disbursement. -They have become a popular form of credit because the interest on them is often tax-deductible for the consumer.

Enforcement is a part of safeguarding money that involves catching?

those who attempt to take it.

The six largest banks in the United States now have 67% of the?

total assets in the U.S. financial system. -That is up 37% from 2008.

Not only does this function involve physical security, but it also includes?

tracking down fraud, making collections, and pursuing legal actions against those who inflict losses on the bank. -Robbers, white-collar embezzlers, or people who default on loans are all included in the group targeted by enforcement efforts.

An identity thief conducts ?

transactions illegally for personal gain.

You may not like to think of your savings account as a problem for the bank, but it is one in theory. If depositors simultaneously want all their money from all their accounts, banks would be in ?

trouble.

If you consider the definition of a bank to be a business that safeguards, transfers, exchanges, and lends money, many firms might qualify. Certainly banks perform these roles, but so do?

trust companies, insurance companies, stockbrokers, investment bankers, and other companies.

Banks have additional income sources. In addition to loan income, including credit-card interest, they also charge for ?

various services.

Automated teller machines (ATMs):

were the first of the high-tech revolutions for consumers. First appearing as novelties in the late 1960s, ATMs have made "banker's hours" irrelevant. Customers can now perform almost any banking function from an ATM, and have access to their accounts day or night. Networked ATMs have made it possible to do business with one's bank at any time from almost anywhere in the world. ATMs reduce transaction costs, encourage the use of the bank, and earn income from fees. The reduced transaction costs apply to the bank and not necessarily to the customer. ATMs are available in a variety of venues, including shopping centers, amusement parks, universities, airports, sports arenas, and workplaces. Because ATMs are everywhere, using an ATM, which often intimidated early customers, is a common and casual act that most people take for granted today.

Profit, or net income, is:

what's left of revenue after costs are deducted.

A bank's ratios for several years can be reviewed to determine ?

whether they have remained the same, increased, or decreased.

Another important ratio is return on equity (ROE):

which measures how well a bank is using its equity (also called stockholders' equity). Equity represents net assets, or total assets, minus total liabilities. HB's ROE is: Net income ÷ Total equity = Return on equity $10,000 ÷ $71,500 = 0.139 or 13.9% ROE (13.9 cents on the dollar) .

Banking has changed radically in the last 20 years, and it is now one of the most competitive businesses in the world. Today, large regional banks may have huge resources, and when these giants compete, consumers can sometimes be the?

winners.

The spread is income, or revenue, but costs have?

yet to be considered.