Chapter 13 Banking

Types of Financial Institutions

There are many different types of financial institutions in Canada. The main “deposit-taking” types are:• Chartered Banks• Trust Companies• Caisses Populaires• Credit Unions

The Need for Financial Institutions • Financial Institutions provide many different services

and earn profits by: 1. Selling products and services (accounts, financial advice,

cheques)2. Charging interest on money loaned (mortgages, lines of credit,

personal and business loans)3. Earning interest on their investments (RRSPs, Mutual Funds)

• Bank Act: • Outlines rules and regulations that banks have to follow• Gives banks authority to operate • Outlines procedures for opening new banks, forming mergers• Government will revise the act from time to time

Schedule I, II and III3 classes of banks: class determined by who owns it

• Schedule I• Owned by Canadian shareholders

• “Big 5” (BMO, RBC, BNS, TD, CIBC) Table 13.2

• Schedule II• Foreign owned

• Owned by a small number of private shareholders

• Same powers as Schedule 1 banks

• Government limits # of branches

• AMEX, ING, HSBC, State Bank of India

• Focus on investment banking, business accounts

• Schedule III • Foreign bank branches

• Same as schedule II but more restrictions

• Capital One, Citibank

• Benefits to Branch Banking • Same service everywhere • Small communities linked to financial center • Every branch is fully supported with expertise • We can go to any branch with our PIN and card • Branches help to balance poor economy with good

economy

• How is Branch Banking Changing?• ABM, online, telephone encouraged • In some areas, retailers are doing banking jobs (ex. PC

Financial, cash back feature)• Credit unions are replacing banks in rural areas

The Bank of Canada

• Function :• Control money supply to regulate the economy • They do this by changing the BANK RATE also called the

PRIME RATE• This causes banks to change their interest rates (this is

the minimum they will charge for loans)

• Consequence of rising and falling interest rates?• Low interest rate = higher spending, high borrowing • Higher interest rate = higher savings, less spending

Bank of Canada Video

• http://www.bankofcanada.ca/en/video_corp/videos.html

• Now fill in the rest of your handout using the textbook.

Other Financial Institutions

Trust Companies

• Like banks, but more like a financial services company

• Assist customers with purchasing real estate

• Look after the estates of the deceased

• Maintain accounts for charitable organizations

• Not under the Bank Act

Credit Unions

• Organized and owned by a group of people who agree to pool their resources

• Offer services like a bank

• Only provide services to members and their families

• Each member has an equal vote when making decisions

Other Financial Institutions

Insurance Companies

• Companies that insure risk

• Life, health, property and car are often the focus

• Age will influence insurance needs

• Businesses need insurance too: • Fire, liability, auto, misconduct, malpractice, product

liability

• Payments from many to pay out claims for a few