MONEY MONEY &&

BANKINGBANKING

MONEY MONEY &&

BANKINGBANKING

MONEYMONEY

Functions of Functions of MoneyMoney

Functions of Functions of MoneyMoney

Medium of exchangeMedium of exchangeExchange $ for g & sExchange $ for g & s

Standard of valueStandard of valueAllow for value comparisonAllow for value comparison

Store of valueStore of valueSaving for future useSaving for future use

Medium of exchangeMedium of exchangeExchange $ for g & sExchange $ for g & s

Standard of valueStandard of valueAllow for value comparisonAllow for value comparison

Store of valueStore of valueSaving for future useSaving for future use

Characteristics of MoneyCharacteristics of MoneyCharacteristics of MoneyCharacteristics of Money

Our $ is generally acceptableOur $ is generally acceptable Can be counted and measured Can be counted and measured

accuratelyaccurately DurableDurable ConvenientConvenient Inexpensive to produceInexpensive to produce Easy to control supply in our Easy to control supply in our

economyeconomy

Our $ is generally acceptableOur $ is generally acceptable Can be counted and measured Can be counted and measured

accuratelyaccurately DurableDurable ConvenientConvenient Inexpensive to produceInexpensive to produce Easy to control supply in our Easy to control supply in our

economyeconomy

The Value of Our The Value of Our CurrencyCurrency

The Value of Our The Value of Our CurrencyCurrency

Our currency has a value because Our currency has a value because the government says it does!!the government says it does!!

Our currency has a value because Our currency has a value because the government says it does!!the government says it does!!

Our bankingsystem

Our bankingsystem

Kinds of MoneyKinds of MoneyKinds of MoneyKinds of Money

CurrencyCurrency

Checks (= demand deposits)Checks (= demand deposits)

Traveler’s checksTraveler’s checks

CurrencyCurrency

Checks (= demand deposits)Checks (= demand deposits)

Traveler’s checksTraveler’s checks

Banks and the Money Banks and the Money Supply Supply

Banks and the Money Banks and the Money Supply Supply

Money supply– total amount of $ Money supply– total amount of $ available for use as a medium of available for use as a medium of exchangeexchange

Banks– VITAL in our economyBanks– VITAL in our economy

Banks hold currency and offer Banks hold currency and offer demand deposit servicesdemand deposit services

Money supply– total amount of $ Money supply– total amount of $ available for use as a medium of available for use as a medium of exchangeexchange

Banks– VITAL in our economyBanks– VITAL in our economy

Banks hold currency and offer Banks hold currency and offer demand deposit servicesdemand deposit services

Bank ServicesBank ServicesBank ServicesBank Services Checking accountsChecking accounts

Easy…secure..good recordsEasy…secure..good records Savings accountsSavings accounts

NOT a demand deposit… notice for large NOT a demand deposit… notice for large withdrawals requiredwithdrawals required

Earn interestEarn interest Allow banks to make loansAllow banks to make loans

LoansLoans Most important role in economyMost important role in economy An amount of $ borrowed for certain An amount of $ borrowed for certain

period of timeperiod of time Pay $ back PLUS interestPay $ back PLUS interest Helps economy to grow… helps people to Helps economy to grow… helps people to

start or expand businessesstart or expand businesses

Checking accountsChecking accounts Easy…secure..good recordsEasy…secure..good records

Savings accountsSavings accounts NOT a demand deposit… notice for large NOT a demand deposit… notice for large

withdrawals requiredwithdrawals required Earn interestEarn interest Allow banks to make loansAllow banks to make loans

LoansLoans Most important role in economyMost important role in economy An amount of $ borrowed for certain An amount of $ borrowed for certain

period of timeperiod of time Pay $ back PLUS interestPay $ back PLUS interest Helps economy to grow… helps people to Helps economy to grow… helps people to

start or expand businessesstart or expand businesses

Banks are a MAJOR business Banks are a MAJOR business in our economy.in our economy.

Banks are a MAJOR business Banks are a MAJOR business in our economy.in our economy.

Other Financial Other Financial InstitutionsInstitutions

Other Financial Other Financial InstitutionsInstitutions

Savings & Loans associationsSavings & Loans associations Functions like banksFunctions like banks

Mutual Savings banksMutual Savings banks Owned by depositors where profits Owned by depositors where profits

are paid to themare paid to them Credit UnionsCredit Unions

Serves ONLY its membersServes ONLY its members Members usually work for one Members usually work for one

company or a unit of governmentcompany or a unit of government

Savings & Loans associationsSavings & Loans associations Functions like banksFunctions like banks

Mutual Savings banksMutual Savings banks Owned by depositors where profits Owned by depositors where profits

are paid to themare paid to them Credit UnionsCredit Unions

Serves ONLY its membersServes ONLY its members Members usually work for one Members usually work for one

company or a unit of governmentcompany or a unit of government

The The Federal Federal Reserve Reserve SystemSystem

The The Federal Federal Reserve Reserve SystemSystem

Need for Gov’t RegulationNeed for Gov’t RegulationNeed for Gov’t RegulationNeed for Gov’t Regulation

Created in 1913 by Created in 1913 by CongressCongress

Regulates banks activities Regulates banks activities to avoid widespread to avoid widespread financial hardshipsfinancial hardships

Citizens demand that the Citizens demand that the government regulate government regulate because banks closed and because banks closed and customers lost moneycustomers lost money

Created in 1913 by Created in 1913 by CongressCongress

Regulates banks activities Regulates banks activities to avoid widespread to avoid widespread financial hardshipsfinancial hardships

Citizens demand that the Citizens demand that the government regulate government regulate because banks closed and because banks closed and customers lost moneycustomers lost money

How the Fed is OrganizedHow the Fed is OrganizedHow the Fed is OrganizedHow the Fed is Organized Federal Reserve DistrictsFederal Reserve Districts

12 districts… NC in district 5-- Richmond12 districts… NC in district 5-- Richmond

Federal Reserve DistrictsFederal Reserve Districts 12 districts… NC in district 5-- Richmond12 districts… NC in district 5-- Richmond

Run by a Board of GovernorsRun by a Board of Governors 7 members- appointed by President for 7 members- appointed by President for

14 year terms14 year terms Open Market CommitteeOpen Market Committee

7 (B of G) and the presidents of 5 FR Banks7 (B of G) and the presidents of 5 FR Banks Regulate nation’s $ supplyRegulate nation’s $ supply

Federal Advisory CouncilFederal Advisory Council 12 bankers (private)– one from each 12 bankers (private)– one from each

districtdistrict Advise B of G and Open Market Council on Advise B of G and Open Market Council on

nation’s business and banking problemsnation’s business and banking problems

Run by a Board of GovernorsRun by a Board of Governors 7 members- appointed by President for 7 members- appointed by President for

14 year terms14 year terms Open Market CommitteeOpen Market Committee

7 (B of G) and the presidents of 5 FR Banks7 (B of G) and the presidents of 5 FR Banks Regulate nation’s $ supplyRegulate nation’s $ supply

Federal Advisory CouncilFederal Advisory Council 12 bankers (private)– one from each 12 bankers (private)– one from each

districtdistrict Advise B of G and Open Market Council on Advise B of G and Open Market Council on

nation’s business and banking problemsnation’s business and banking problems

How the Fed is Organized How the Fed is Organized cont’dcont’d

How the Fed is Organized How the Fed is Organized cont’dcont’d

Functions of the FedFunctions of the FedFunctions of the FedFunctions of the Fed Provide ServicesProvide Services

Collects and clears checksCollects and clears checks Wire $-- FedwireWire $-- Fedwire Supply currency to banksSupply currency to banks

Government’s bankGovernment’s bank Store tax money paid by citizensStore tax money paid by citizens Gov’t checking accountsGov’t checking accounts Federal gov’t debt recordsFederal gov’t debt records Bonds (!!)Bonds (!!)

Supervise banksSupervise banks Sets minimum amount of funds that must Sets minimum amount of funds that must

be kept on depositbe kept on deposit

Provide ServicesProvide Services Collects and clears checksCollects and clears checks Wire $-- FedwireWire $-- Fedwire Supply currency to banksSupply currency to banks

Government’s bankGovernment’s bank Store tax money paid by citizensStore tax money paid by citizens Gov’t checking accountsGov’t checking accounts Federal gov’t debt recordsFederal gov’t debt records Bonds (!!)Bonds (!!)

Supervise banksSupervise banks Sets minimum amount of funds that must Sets minimum amount of funds that must

be kept on depositbe kept on deposit

Functions of the Fed Functions of the Fed cont’dcont’dFunctions of the Fed Functions of the Fed cont’dcont’d

Makes loans to banksMakes loans to banks Charge banks a special interest rate Charge banks a special interest rate Protect individuals and businesses that Protect individuals and businesses that

use banksuse banks Truth in Lending LawsTruth in Lending Laws

Control money supplyControl money supply Controls nation’s money supply by Controls nation’s money supply by

influencing amount of $ people borrowinfluencing amount of $ people borrow

Makes loans to banksMakes loans to banks Charge banks a special interest rate Charge banks a special interest rate Protect individuals and businesses that Protect individuals and businesses that

use banksuse banks Truth in Lending LawsTruth in Lending Laws

Control money supplyControl money supply Controls nation’s money supply by Controls nation’s money supply by

influencing amount of $ people borrowinfluencing amount of $ people borrow

Inflation– rise in price of goods Inflation– rise in price of goods and servicesand services

Recession– slowdown in economic Recession– slowdown in economic activityactivity

controls money supply in order to controls money supply in order to keep a balance between inflation keep a balance between inflation and recessionand recession

Inflation– rise in price of goods Inflation– rise in price of goods and servicesand services

Recession– slowdown in economic Recession– slowdown in economic activityactivity

controls money supply in order to controls money supply in order to keep a balance between inflation keep a balance between inflation and recessionand recession

Banking HistoryBanking HistoryBanking HistoryBanking History

Early History:Early History: 11stst attempt - 1791 to 1836 attempt - 1791 to 1836 not successful -- States rights issuenot successful -- States rights issue Without a national banking system, Without a national banking system,

there were hundreds of different there were hundreds of different currencies and rapid inflation of currencies and rapid inflation of pricesprices

Early History:Early History: 11stst attempt - 1791 to 1836 attempt - 1791 to 1836 not successful -- States rights issuenot successful -- States rights issue Without a national banking system, Without a national banking system,

there were hundreds of different there were hundreds of different currencies and rapid inflation of currencies and rapid inflation of pricesprices

Banking History Banking History cont’dcont’d Banking History Banking History cont’dcont’d

National Banking Act of 1863National Banking Act of 1863 created a dual system of banks - created a dual system of banks -

both state and federal banks.both state and federal banks. uniform US currencyuniform US currency

National Banking Act of 1863National Banking Act of 1863 created a dual system of banks - created a dual system of banks -

both state and federal banks.both state and federal banks. uniform US currencyuniform US currency

Banking History Banking History cont’dcont’d Banking History Banking History cont’dcont’d

Glass-Steagall Banking Act 1933Glass-Steagall Banking Act 1933

Great Depression reactionGreat Depression reaction Created the FDIC to insure all Created the FDIC to insure all

deposits up to $100,000 … deposits up to $100,000 … changed in 2008 to $250,000changed in 2008 to $250,000

Helps prevent “runs” on banksHelps prevent “runs” on banks

Glass-Steagall Banking Act 1933Glass-Steagall Banking Act 1933

Great Depression reactionGreat Depression reaction Created the FDIC to insure all Created the FDIC to insure all

deposits up to $100,000 … deposits up to $100,000 … changed in 2008 to $250,000changed in 2008 to $250,000

Helps prevent “runs” on banksHelps prevent “runs” on banks

Banking History Banking History cont’dcont’d Banking History Banking History cont’dcont’d

Savings and Loan Crisis of the late 1980sSavings and Loan Crisis of the late 1980s The government relaxed regulations on The government relaxed regulations on

banks in the late 1970sbanks in the late 1970s Many banks failed due to bad Many banks failed due to bad

investments. investments. The United States government stepped The United States government stepped

in to bail out the S & Ls in to bail out the S & Ls It cost the government about $200 It cost the government about $200

billionbillion

Savings and Loan Crisis of the late 1980sSavings and Loan Crisis of the late 1980s The government relaxed regulations on The government relaxed regulations on

banks in the late 1970sbanks in the late 1970s Many banks failed due to bad Many banks failed due to bad

investments. investments. The United States government stepped The United States government stepped

in to bail out the S & Ls in to bail out the S & Ls It cost the government about $200 It cost the government about $200

billionbillion

Banking History Banking History cont’dcont’d Banking History Banking History cont’dcont’d

Gramm-Leach-Bliley Act of 1999Gramm-Leach-Bliley Act of 1999 Permits bank holding companies Permits bank holding companies

more freedom to engage in a more freedom to engage in a wider series of financial optionswider series of financial options

Forces banks to put in safeguards Forces banks to put in safeguards to protect your moneyto protect your money

Gramm-Leach-Bliley Act of 1999Gramm-Leach-Bliley Act of 1999 Permits bank holding companies Permits bank holding companies

more freedom to engage in a more freedom to engage in a wider series of financial optionswider series of financial options

Forces banks to put in safeguards Forces banks to put in safeguards to protect your moneyto protect your money