Banks 101

1
Banks 101

• Banking Credit
• Mr. Yates

2
So what is a bank anyway?

• Banks have been around about as long as civil
  society they operated as money lenders as far
  back as the Roman Empire.
• The first government-licensed deposit bank is
  believed to have been established in Genoa,
  Italy, around 1400.

3
The Palace
4
Purpose of Banks

• Banks put a community's surplus funds (deposits
  and investments) to work by lending to people to
  buy homes and cars, to start and expand
  businesses, to put their children through
  college, and for countless other purposes.
• Banks are vital to the health of our nation's
  economy.

5
What services do they provide?

• There's a whole range of services and activities
  a bank might offer
• savings and checking accounts
• investment services
• personal loans, business loans, mortgages, car
  loans, boat loans,
• Internet banking, as well as financing of stock
  issues and mergers by investment bankers

6
How do banks make money?

• It's all about the spread.
• That's the difference between the interest rate a
  bank pays on money it borrows (from the
  government or other banks, for example)
• and the rate it charges the people and companies
  that borrow money from the bank.

7
Mo Money

• Banks also make money from the fees they charge
  on accounts and transactions.
• For many major banks, a big chunk of their
  revenue comes from interest and fees charged on
  credit cards.

8
annnnd mo money

• Banks also make money from their own investments
  that's where the trouble came in for many of
  them in the ongoing crisis.

9
So how much money is out there?

• Tough one to answer
• Actual tangible money almost equates to petty
  cash
• In the 90s there was already 3.3 Trillion out
  there

10
Money out there

• While currency is still the most popular method
  of payment, it accounts for only 1 of the value
  of all transactions.
• And the big money travels via "wire transfer"
  between banks--0.1 of the transactions, but 80
  of the dollars.

11
And the government creates the money right?

• Well, yes, and no- The government doesn't create
  money, private banks do.
• Banks create money by making loans.

12
Creating Money

• Suppose I put 100 in my checking account.
• The bank bets I won't draw it out for a while and
  lends 85 of my 100 to someone else.
• That person has 85 in folding green and I've got
  100 in checking that theoretically I can draw
  out at any time.
• Behold, the local money supply has bloomed from
  100 to 185.

13
Resources

• http//www.mainstreet.com/article/money/investing/
  banking-101-how-banks-make-their-money
• http//www.straightdope.com/columns/read/719/how-m
  uch-money-is-there