3. Types of Banks

There are several types of banking institutions, and initially they were quite distinct. Commercial banks were originally set up to provide services for businesses. Now, most commercial banks offer accounts to everyone.

Savings banks, savings and loans, cooperative banks and credit unions are actually classified as thrift institutions. Each originally concentrated on meeting specific needs of people who were not covered by commercial banks. Savings banks were originally founded in order to provide a place for lower-income workers to save their money. Savings and loan associations and cooperative banks were established during the 1800s to make it possible for factory workers and other lower-income workers to buy homes. Credit unions were usually started by people who shared a common bond, like working at the same company (usually a factory) or living in the same community. The credit union's main function was to provide emergency loans for people who couldn't get loans from traditional lenders. These loans might be for things like medical costs or home repairs.

Now, even though there is still a differentiation between banks and thrifts, they offer many of the same services. Commercial banks can offer car loans, thrift institutions can make commercial loans, and credit unions offer mortgages!

4.How safe is your money in a bank?

The 12 regional Reserve Banks act as the service division of the Federal Reserve -- they carry out the monetary policy set by the Federal Reserve Board and regulate and supervise financial institutions. The agency that charters the bank is also responsible for conducting on-site examinations to make sure the bank is complying with banking laws. In addition to this supervision, your money is also protected by insurance.

That "FDIC" logo you see as you walk in the door means that you hold insurance on your deposits. Depositors are typically protected for up to $100,000.

Deposit insurance came about because of rumors of banking trouble that lead to panics and everyone running to the bank to withdraw all of their money. It didn't take much to make people uneasy about the security of their money in the bank. If they heard of the slightest hint of trouble, they ran to the bank to withdraw. This lead to the failure of many banks and huge losses of savings for many people. This roller coaster of personal finance lasted for many years and throughout the Great Depression of the 1930s. Finally, in 1934, Congress established the Federal Deposit Insurance Corporation (FDIC), which initially provided deposit insurance coverage of $2,500 per depositor. This greatly improved the security of banks and reduced the number of bank failures by almost 4,000 from 1933 to 1934.

Public confidence in the banking system has improved tremendously since the FDIC was established. The trust that depositors need in order to make the system work is maintained, and the economy keeps humming.

Banks also carry private banking insurance -- specially designed private coverage to protect deposits in the case of burglaries, robberies, vandalism, etc.

(by Lee Ann Obringer// http://money.howstuffworks.com/personal-finance/bank.htm)

Tasks to the text “How Banks work”

Task 1. Match the terms and their definitions². Note that some terms have more than one definition.

1.bank 2.bank run 3.Central Bank 4.certificate of deposit (CD) 5.checking account 6.credit 7.credit card 8.creditor 9.debit 10.Federal reserve bank 11.fixed interest rate 12.interest 13.interest rate 14.interest rate ceiling 15.loan 16.merchant bank 17.money market account 18.mortgage 19.reserve requirements 20.saving account 21.thrift bank 22.variable interest rate

a bank providing services for a country’s government and major commercial banks A loan or mortgage with an interest rate that will remain at a certain rate for the entire term of the loan A savings certificate entitling the bearer to receive interest. It bears a maturity date, a specified interest rate, and can be issued in any denomination. These certificates are generally issued by commercial banks. A situation in which numerous bank customers try to withdraw their bank deposits simultaneously and the bank’s reserves are not sufficient to cover the withdrawals. An interest rate that moves up and down based on the changes of an underlying interest rate index. Requirements regarding the amount of funds that banks must hold in reserve against deposits made by customers. This money must be in the bank’s vaults or at the closest Federal Reserve Bank. The banks that carry out Fed operations, including controlling the money supply and regulating member banks. The charge for the privilege of borrowing money, typically expressed as an annual percentage rate. A deposit account intended for funds that are expected to stay in short-term. Savings accounts offer lower returns than the market rates. A deposit account intended for quick turnover. Checking accounts offer very low interest on unused cash balances. A saving account that offers the competitive rate of interest in exchange for larger than normal deposits. The monthly effective rate paid (or received if you are a creditor) on borrowed money. Expressed as a percentage of the sum borrowed. The absolute maximum rate of interest that a financial institution can charge for an adjustable rate mortgage or loan. An arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the borrowed money along with interest, at a predetermined date in the future. A loan secured by the collateral of some specified real estate property. In which the borrower is obligated to make a predetermined set of payments to repay the loan. One who extends credit by giving a person or organization permission to borrow money if they promise to pay it back at a later date. A commercial institution licensed as a receiver of deposits. Banks are mainly concerned with making and receiving payments as well as supplying short-term loans to individuals. A bank which deals mostly in (but is not limited to) international finance, long term loans to companies and underwriting. These banks do not provide normal banking services to the general public. A bank whose main purpose is to take deposits from consumers and make home mortgages. A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some date in the future. An accounting entry which results in either an increase in assets or a decrease in liabilities or in your bank account. A card allowing someone to make purchase on borrowed money.

Task 2. Fill in the gaps with the words from Task 1.

1. A bank is a perfect example of a ____________

2. A __________ main job is implementing monetary policy.

3. _____________ are a result of panic.

4. Borrowing $1000 at 6% ____________ would mean that you’d pay $ 60 in interest.

5. Borrowing money to buy a new car is _______, as is borrowing money to construct a specialty coffee shop in your kitchen… We all have dreams.

6. In most countries ____________ are supervised by the national government or central bank.

7. Lenders make money from __________, borrowers pay it.

8. Many __________ place restrictions on the amount of transactions you can have in a month.

9. Set by the Fed’s Board of Governors, ________ are one of the three main tools of monetary policy.

10. Someone who holds more than 5 – 10 % of the stock in a company is said to hold significant ________.

11. Technically, ___________ is a promissory note on which the maker is a bank.

12. Their knowledge in international finance makes ________ specialists in dealing with multinational corporations.

13. __________ typically don\t bother themselves with corporate banking, brokering, or underwriting.

14. You’re lucky if your __________ earns more than the rate of inflation!

Task 3 Fill in the gaps with the appropriate conjunctions.

1. The thing that’s hard to grasp is the fact that … people are putting money into the bank every day, the bank is lending that same money and more to other people every day.

2. In the event of bank failure, your money is protected … the bank is insured by the Federal Deposit Insurance Corporation (FDIC).

3. A bank never knows … it’ll get that money back.

4. … paying interest may not seem to be a great financial move in some respects, it really is a small price to pay for using someone else’s money.

5. We wouldn’t be able to buy houses … we retired!

6. These types of accounts require that you keep your money in the bank … you reach a certain age or your child enters college.

Task 4. Look at these sentences and say where omitted relative pronouns can be inserted.

1. Interest you earn on your balance is also added to your account.

2. They make money on the interest they charge on loans because that interest is higher than the interest they pay on depositors’ accounts.

3. The interest rate a bank charges its borrowers depends on both the number of people who want to borrow and the amount of money the bank has available to lend.

4. As we mentioned in the previous section, the amount available to lend also depends upon the reserve requirement the Federal Reserve Board has set.

5. Therefore, the riskier the loan the higher the interest rate the bank charges.

6. The most common type of account, and probably the first account you ever had, is a savings account.

7. This is another common account most everyone has.

8. The state charters and federal charters typically do not differ too much in the way the bank conducts business.

9. The important thing is to carefully select these partners and make sure they are team players, have the experience and know-how to help you make the bank work, and can withstand (both professionally and personally) the close scrutiny of the regulatory investigation.

10. The number of directors you must have varies from state to state.

11. There is still the need to make sure a stable and safe financial environment is maintained.

12. This will help make sure that you have all of the information you need to file.

Task 5. Fill in the sentences with let or allow in appropriate form.

1. Some also … you to set up individual retirement accounts (IRAs) and other retirement or education savings accounts.

2. These accounts … you to keep your money in a safe place.

3. It’s convenient because it … you buy things without having to worry about carrying the cash.

4. These are accounts that … you to put in a specific amount of money for a specific period of time.

5. This arrangement not only gives the bank money they can use for other purposes, but also … them know exactly how long they can use that money.

6. … us look at the steps you have to go through in order to start your own bank.