Money Management

Banks and Banking

A bank is a company that works with the money that people give it. If you give your money to a bank, it not only protects it but pays you interest so that it can work with the money. This is one of the reasons why people save their money in a bank. Money may also be safer there than at home.

What is Banking?

Interest is the extra money that you must pay back when you borrow money.

Interest rate is the percentage that banks give to savers when they leave their money in a bank. It is also the rate they charge customers for borrowing money

What is Banking?

• Investment Banks• Commercial Banks

• Development Banks

• Central Banks

• Online Banks

• Savings and Loans

Types of Banks

• Investment Banks• Help organizations and large

companies raise money on the international financial markets

• Commercial Banks• Most important banks• Services Include Accounts and loans• Open to businesses and general

public

Types of Banks Continued

• Development Banks• Help Third World Countries• Send Aid Workers• Offer Technical Help

• Central Banks • Manage a countries banking system• Examples: The Federal Reserve,

European Central Bank, Bank of England

Types of Banks Continued

• Online Banks• Provide Higher Interest Rates • Do not have overhead and fees

of Brick and Mortar Banks

• Savings and Loans• Specialize in financing Houses

Types of Banks Continued

History• The Central Bank of

The United States is named the Federal Reserve

• The European Central Bank is responsible for the distribution and value of the Euro

• More Commonly known as The Fed

• The worlds largest banks are located in Europe, USA, Japan

Italy was the center of banking during the middle Ages. Jewish traders emerge as the first bankers and became very successful.

The Medici family dominated Florence for over two centuries. They set up Europe’s largest bank in the 15th century.

History

A set of agreements set by the Basel Committee on Bank Supervision (BCBS), which provides recommendations on banking regulations in regards to capital risk, market risk and operational risk. The purpose of the accords is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses.

Basel Accord

The first Basel Accord, known as Basel I, was issued in 1988 and focuses on the capital adequacy of financial institutions. The capital adequacy risk, (the risk that a financial institution will be hurt by an unexpected loss), categorizes the assets of financial institution into five risk categories (0%, 10%, 20%, 50%, 100%). Banks that operate internationally are required to have a risk weight of 8% or less.

Accord I

The second Basel Accord, known as Basel II, is to be fully implemented by 2015. It focuses on three main areas, including minimum capital requirements, supervisory review and market discipline, which are known as the three pillars. The focus of this accord is to strengthen international banking requirements as well as to supervise and enforce these requirements.

Accord II

In 1929 the first world wide banking crises began. During, The Great Depression many people lost their jobs, savings, and homes. Many banks went out of business or became bankrupt. Many depositors rushed banks in an attempt to withdraw their money.

Great Depression

In 1933 Franklin D. Roosevelt signed a bill in which the government guaranteed the savings of depositors if the bank went out of business

FDR

Today

The 2008 banking crisis

hit in America first and the

spread throughout the

world. Banks gave home

owners mortgages without

checking the financial

back grounds. Housing

prices dropped and banks

began to loss money.