Banking

Week 1 Assigned Questions

1. What is a bank? How does a bank differ from most other financial-service providers?

A bank is a financial institution that allows its customers to deposit funds and then write checks or use debit cards to access those funds. Banks accept deposits from individuals and businesses and then use those deposits to loan money to individuals and businesses. Banks are intermediaries between depositors and borrowers. In many countries, they are privately owned. Some banks pay interest on their depositor’s checking accounts if a certain amount is maintained. Others offer interest only on savings accounts. Prior to 1980, the differences between a commercial bank and other financial service providers were greater than it is today. Commercial banks could offer their customers checking accounts while other financial service providers could not. The Depository Institutions Deregulation and Monetary Control Act was passed by Congress in 1980. This act was designed to stimulate competition among financial institutions. Now other financial-service providers could offer some of the same services commercial banks did. Then in 1999, Congress passed the Gramm-Leach-Billey Act which allowed commercial banks to expand their services into areas that included selling insurance and securities. Banks differ in several ways from other financial-service providers. Most banks are regulated by the Federal Depositor’s Insurance Corporation. Banks generally will only loan small amounts without collateral. Interest rates are usually lower as well, and the time frame to pay off the loan is normally shorter than with another lending agency.

2. Which businesses are bank’s closest and toughest competitors? What services do they offer that compete directly with banks’ services? After Congress passed the Gramm-Leach-Bliley Act in 1999, banks were able to offer some of the same services as that of other agencies placing them in direct competition with...