Banking Basics
June 8th, 2007 | by rachel |
How much do you really know about banking? Not YOUR bank, necessarily, but the banking process in general. Do you know how banks operate the way they do? I confess that banks are one of those things that I have thought were just there because they had always been there. I decided to educate myself a little more thoroughly about banking. Actually, it is pretty interesting not to mention that it helps what I know about money make a lot more sense than it used to!
- created in 1913 and signed into law by President Woodrow Wilson
- located in Washington, D.C.
- serves as the central bank for the U.S. Government
- serves as a bank for chartered banks throughout the country
- made up of a network of 12 Federal Reserve Banks and their branches
- nicknamed “The Fed”
- distributes currency produced by the U.S. Treasury
- monitors the condition of U.S. currency and destroys when necessary
- influences the economy by manipulating the connection between the required reserve and the amount of money that is available to be lent
- the REQUIRED RESERVE is the amount of cash that banks must keep to allow them to pay depositors
- processes and clears 1/3 of all checks processed in the country (approximately 20 billion)
BANKING INFORMATION
- A bank is an institution that provides financial services to its customers
- Banks can be chartered by their state and/or by the federal government. All banks operate under strict regulations while trying to make a profit.
- Banks make money by putting their customer’s money (deposits) to use (creating loans).
- A federally chartered bank is REQUIRED to be a member of the Federal Reserve System.
- The Federal Deposit Insurance Corporation (FDIC) was established by Congress in 1934.
- The FDIC insures customer deposits up to $100,000.
- All chartered banks must apply for deposit insurance with the FDIC BEFORE accepting deposits from the public.
- The “product” that banks sell is MONEY.
- Investment products, EVEN IF PURCHASED THROUGH BANKS, are not insured by the FDIC.
- Banks make money by interest rates charged on loans AND fees charged for their financial services.
COMMON BANKING PRODUCTS
TYPES OF BANKS
So, bottom line, what does all this have to do with you and your money? You will have to apply the information to your own financial specifics. As for me, here is what I took away from my research…
- An understanding of the role that “the Fed” plays in my personal finances.
- A better understanding of the way that my banks works. Knowing that will allow me to make more informed choices when choosing bank services.
- Information about ways that I can be a more responsible consumer in the U.S. economy.
SOURCES:
http://money.howstuffworks.com/fed.htm