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					Financial Institutions and
        Banking
    Canada’s Financial Institutions


•   Chartered Banks
•   Trust Companies
•   Caisses Populaires
•   Credit Unions
            Canadian Banking
• Banks are businesses
• Banks sell services and earn profits on these services
• Most of their revenue is earned by charging interest on
  money they loan to consumers, businesses, and the
  government.
• They invest a portion of the money customers deposit
  into accounts and earn more interest than they pay their
  customers.
• They also charge service fees depending on the type of
  account you have with them and services they perform
  for you
                    The Bank Act
• Canadian Constitution of 1867
  gave the federal government
  control over banking and money
  which means the federal
  government makes all laws and
  regulations concerning banking
  and money so all banks in
  Canada operate under similar
  rules

• An individual province or city can
  not change the rules and allow
  banks in their area do something
  that the federal government
  doesn’t allow them to do.
               The Bank Act
• Outlines procedures for:
  1. opening new banks;
  2. forming mergers with other banks;
  3. other details on what they can and can
     not do

For example, banks must:
  1. make regular reports to the federal minister of
     finance
              The Bank Act

• Every few years, the
  federal government
  reviews the Bank Act to
  ensure it continues to
  meet the needs of society
  and the business
  community
             The Bank Act
• The government introduced new pieces of
  legislation (bills) which go through the
  legislative process to become new laws
  that are added to the Bank Act.

Example:
• 1980 changes to the act allowed foreign
  banks to operate in Canada for the first
  time.
            The Bank Act
• Established three classes of chartered
  banks:
  1. Schedule I
  2. Schedule II
  3. Schedule III

• The class to which a bank belongs is
  determined by its ownership
 Three Classes of Canadian Banks
                              Schedule II Banks
Schedule I Banks
                              • Mostly foreign owned banks
• Owned by Canadian             but are controlled by a small
  shareholders                  number of shareholders
• Shares are traded on the    • They don’t generally offer
  major Canadian stock          shares to the public
  exchanges                   • Have the same powers as
• Investors buy shares in       Schedule I banks, but the
  these banks in order to       government limits the total
  receive a share of the        number of branches they can
                                have and the total amount of
  profits                       assets they can hold
• Canada has 19 Schedule I    • Examples include the Amex
  banks.                        Bank of Canada, the HSBC
• Examples include CIBC,        Bank of Canada, ING Bank of
  RBC, TD, BMO,                 Canada
  Scotiabank, Canadian Tire   • Most focus on investment
  Bank                          banking and corporate
                                customers
         Classes of Banks
Schedule III Banks
• Foreign bank branches with permission to
  operate in Canada
• The Bank Act sets restrictions on these
  banks
• Most offer investment banking and
  corporate services
• Examples include Capital One Bank,
  Deutsche Bank A.G., and Citibank
  Branch Banking
Each Schedule I bank has a head
office on one of Canada’s cities

Head office is connected to thousands
of bank branches across Canada.



Branches are also in more than
40 foreign countries.
            Bank of Canada

The Bank of Canada is
   NOT:
1. A chartered bank
2. A bank where
   consumers can
   open up accounts or
   borrow money
           Bank of Canada
The Bank of Canada:

          is the government’s bank;



          issues Canada’s paper money



          helps keep the Canadian economy as
          stable as possible.
                    Bank of Canada
1.   How does it try to keep the Canadian economy as stable
     as possible?
•    It regulates the money supply which is all the money in
     circulation in the country.

2.   How does it regulate the money supply?
•    It raises or lowers the interest rate also referred to as the
     bank rate or prime lending rate.

3.   What is the bank rate, also referred to as the prime
     lending rate?
•    It is the interest rate the Bank of Canada charges for loans
     it makes to the chartered banks (i.e. CIBC).
•    Chartered banks borrow very little and rarely from the
     Bank of Canada.
   Impact of Interest Rates on the
              Economy
• Raising or the lowering
  of the Bank of Canada’s
  prime lending rate
  indicates that chartered
  banks should follow suit

• Bank of Canada
  announces its new
  bank interest rate
  several times a year
  and it is always in the
  news.
    Impact of Interest Rates on the
               Economy
Raising Interest Rates              Lowering Interest Rates
• Makes it more expensive to        • Makes it less expensive and
  borrow money from the bank.         thus more attractive to borrow
• Used to help keep inflation         money from the bank
  from increasing too much to       • Results in more money
  quickly                             circulating in the economy and
• Results in less money               encourages people to spend
  circulating in the economy and      more money
  people cut back on their          • More dollars being spent leads
  spending.                           to an increase in demand for
• Fewer dollars being spent           products and services which
  leads to a drop in demand for       helps businesses make more
  goods and services, thus            money leading to more jobs for
  helping to control inflation as     society who have money to
  the price of goods does not         spend. This cycle may then
  increase or at least as much as     lead to price increases.
  it might if people have more
  money to spend.
              Trust Companies
First established in the late 1800’s:
• Their purpose was to manage and invest funds entrusted
   to them by customers

Today:
• They provide many of the same services as banks such
  as providing chequing and savings accounts, and
  providing loans.
• They assist customers with the purchase or sale of real
  estate (property)
• They maintain trust accounts for charitable organizations
  an minors
• Sometimes called “near banks.”
Who Governs Trust Companies
• The Bank Act does not
  regulate trust companies.

• Each province and the
  federal government
  specify which types of
  investments trust
  companies can make with
  their customer’s money.
        Canada Deposit Insurance
           Company (CDIC)
• The Canada Deposit Insurance Corporation (CDIC) is a
  federal Crown corporation created by Parliament in 1967
  to protect your deposits made with member financial
  institutions in case of their failure.

• CDIC is NOT a bank.

• CDIC is NOT a private insurance company.

• CDIC automatically insures many types of savings
  against the failure of a bank or financial institution that is
  a CDIC member. However, not all savings are insured
  and CDIC deposit insurance does not protect against
  fraud, theft or scam.
                 CDIC
Products insured and not Insured by CDIC
See link:
• http://www.cdic.ca/e/coveredornot/covered
  ornot.html
    Caisses Populaires and Credit
              Unions
• Organized and owned by a
  group of people who agree to
  pool and share their resources
• Members share a common
  bond such as profession, place
  of employment, geographic
  area, cultural or ethnic
  backgound.
• (i.e. Teachers Credit Union,
  Niagara Credit Union)
        Credit Union and Caisses
          Populaires Services
• Receive Deposits
• Lend money
• Offer chequing services
• Provide investment products like RRSP’s and GIC’s.
• Offer competitive interest rates on deposits and loans
• Focus on residential mortgages, consumer credit and
  deposits.
• If you want to borrow money from a credit union or
  caisses populaire, you must have a savings account with
  them
Credit Union and Caisses Populaires
           Characteristics
 Provide services only to members and their families

To become a member, you must purchase at least one share of
the company


Each member has one vote regardless of how many shares you
own, when making collective decisions for the institution

 Not-for-profit organization, thus all profits earned must be
 returned to their members in the form of dividends or rebates at
 the end of the year.

Depositor’s accounts are protected/insured through provincial legislation.
           Insurance Companies
What are Insurance Companies?
• Financial institutions that insure
  risks
• Provide money to cover the financial
  costs should some kind of accident,
  theft, or other loss happen
  associated with what is being
  insured

What types of insurance are there?
• Life and accident
• Car and home
• Drug and health

Factors influencing an individual’s
  insurance needs:
• Age, marital status, children, home,
  car and other personal items, risk
  comfort level
 Why Do Business’s Need Insurance?

Fire insurance
• To protect a business from losing everything in a
  fire
Property or liability insurance
• Protects against an accident with an employee
  or customer
Auto Insurance
• Allows companies to transport goods without
  concern for being sued for an auto accident
 Why Do Business’s Need Insurance?

Professional Insurance
• Protects physicians, dentists, and lawyers
  from being sued for professional
  misconduct or malpractice

Product Liability Insurance
• Protects against a lawsuit from a product
  being faulty and/or injuring a customer
       How Insurance Works
• Customers are call policyholders.
• The type of insurance one receives and
  the extent of the coverage is called the
  policy.
• Customers pay a determined amount of
  money called a premium. ($120)
• Premiums are usually paid to the
  insurance company on monthly basis.
      How Insurance Works
• Premiums are determined based on a
  number of factors including, but not
  excluded to:
  1. type of insurance
  2. age
  3. financial and scope of coverage wanted
  4. previous insurance record and claims
  5. risk level to the insurance company
         How Insurance Works
• An insurance company has many policyholders each
  contributing premiums

• The insurance company using the premiums of the many
  to pay out the claims of a few.

• A major disaster can quickly cause an insurance
  company to run out of funds to cover claims

• 911 caused a number of insurance companies to go
  bankrupt as they were unable to meet all the claims from
  business and individual loses.

• Insurance companies make most of their money from
  taking premiums and investing.
              Bank Accounts
• Bank accounts where you deposit money until
  you need it are often referred to as deposit
  accounts.

• Financial institutions offer different types of
  deposit accounts depending on one’s needs.

• i.e. Savings account, chequing account, joint
       account

• Interest rates vary from account to account and
  from one bank to another
   Opening and Accessing an Account
Step 1
Provide personal information
  required

Step 2
Provide 2 pieces of identification

Step 3
Fill out a signature card

Step 4
Receive a bank card
       Opening and Accessing an Account

Step 1                           Step 2
Personal information required:   Identification:
•   Full name;                   • Student card
•   Home address                 • Drivers license
•   Date of birth                • Passport
•   Telephone number             • Credit card
•   Occupation, if applicable    • Health card
  Opening and Accessing an Account
Step 3
                            You will need to fill
Signature Card:             out a signature card
• Provides a sample of
  the signature you will
  use when you deposit
  and withdraw money,
  write cheques, and
  engage in other
  financial transactions.
   Opening and Accessing an Account

Step 4
• Receive bank card that
  can be used to conduct
  financial transactions
  such as at an Automated
  Banking Machine (ABM)

• Can be used as a debit
  card to make purchases
  at a store and your bank
  account will automatically
  be deducted by the
  amount of the purchase.
        Account Statements and
             Passbooks

• When you open an account, your account will be
  assigned an account number for easy reference
  of your keeping tack of your account activity

• Depending on the financial institution you may
  receive a monthly, quarterly, or annual bank
  statement reviewing all of your account activity.

• Activity would include deposits, withdraws,
  service charges, interest received, cheques
  cashed, etc.
    Account Statements and Passbooks

• Passbooks which you update
  at the bank or at an ABM,
  provide you with a record of
  all your financial activity

• Passbooks are seldom used
  now, as customers can use
  online and phone banking to
  keep up with their account
  activity.
 Making a Deposit or Withdrawl
Using the ABM:
1. Use your bank card
                            Enter PIN
2. Input your personal
   identification number
   (PIN) – like an
   electronic signature
3. Follow the onscreen
   instructions
4. Take a copy of the
   receipt printed out
 Making a Deposit or Withdrawl
At the bank:
• Fill out a deposit slip
• Teller inputs
    information
    electronically
• You will either give
    or receive money
    from the teller
• The teller will give
    you a receipt
 Types of Common Bank Accounts
1.   Transaction accounts
2.   Savings account
3.   Transaction/Savings account
4.   Current Accounts

5. Joint Account
          Transaction Accounts
• Formerly called chequing accounts
• Transaction account is used to pay bills and for
  purchasing goods and services with cash, cheques, or
  debit cards
• May use an ABM, online banking or telephone banking
• You should receive a receipt of some sort which has
  recorded the details of the transaction.
• Transactions records ensure you know how much
  money is in your account.
• Most financial institutions do not pay interest on this type
  of account
• Some institutions charge service fees depending on the
  number of transactions per month and the balance in
  your account
            Savings Account
• Used by people who want
  to save some money
• Banks will pay interest on
  the balance of your account
• The interest paid is the
  lowest interest rate
  available compared to all
  other types of investments.
• The amount of interest and
  how it is calculated varies
  from bank to bank.
• Some banks require the
  customer to have a
  minimum balance at the
  end of each month – i.e.
  $4000.00.
  Transaction/Savings Account
• Allows you to pay bills but also to save money.
• A small amount of interest may be paid, but less
  than what a savings account would pay
• Service charges may apply to processed
  cheques, debit and withdrawls
• You may be exempt from some or all the service
  fees if you maintain a minimum balance in your
  account at the end of each month. (i.e. $3000)
               Joint Account
• An account
  (transaction, savings,
  or the combination)
  can be opened in the
  name of two or more
  people

• Withdrawls from joint
  accounts may require
  one or more
  signatures, depending
  on the wishes of the
  people who opened
  the account.
               Current Accounts
Current Accounts
• Used by businesses
• Business must be registered with the
  provincial or federal government
• Account must be in the business name
• No interest is paid on these accounts
• Bank charges a service fee for each
  deposit, withdrawl and cheque that is
  procesed
• Cancelled cheques (cashed cheques)
  are returned to the business for their
  accounting records at the end of each
  month along with a bank statement
  outlining the account activity for the
  month.
• Business usually have a deposit book
  with duplicate deposit slips for the
  clients accounting records.
          Cancelled Cheques
• A cheque a business or your wrote out for
  someone, who then cashed the cheque at the
  bank.
• The business or individual’s financial institution
  will stamp the cheque with the date the money
  was taken from the account.
• The institution will either return the cancelled
  cheques to the issuer with a monthly statement
  or provide photocopies of the cancelled
  cheques, or store them for future reference.
• Cancelled cheque is legal proof of payment and
  can be used to prove a payment was made.
                  Writing Cheques
Drawee – The name of the
financial institution would also be
present on the cheque
                                                    Date
                                Amount in Numbers
                Payee




    Amount in words                       Drawer
                Cheque Essentials
Date:
• The date, month and year the cheque can be cashed must be
  present.

Staledated Cheques:
• Most financial institutions will not cash a cheque when the
   date is six months after the date on the cheque.

Postdated Cheques:
• When someone writes a date on the cheque which is later
  than the actual date.
• A financial institution will not cash a cheque until the date that
  is actually on the cheque or after up to six months.
           Cheque Essentials
Payee
• The name of the person or business to
  whom the cheque is written – Pay to the
  order of Bart Simpson.

• Be sure to spell the name of the payee
  correctly, or s/he may experience difficulty
  cashing it.
           Cheque Essentials
Drawee
• This is the name of your financial institution (i.e.
  CIBC)

Drawer
• The person from whose account the money will
  be taken
• Must sign the cheque on the line on the bottom
  right corner of the cheque.
• The signature should be the same as the one on
  the drawer’s bank signature card.
           Cheque Essentials
Stopping Payment
• If a cheque you have written gets lost or stolen,
  you can notify your financial institution and tell
  them you would like a stop payment on a
  cheque.
• A form will then need to filled out with the details
  of the cheque you would like the stop payment
  on.
• The financial institution will charge you a fee for
  this service.
          Cheque Essentials
Holds on Cheques
• The bank may delay when you can collect the
  money from a cheque you are cashing.
• Holds are done until the bank can ensure that
  the person who issued you the cheque actually
  has enough money in the bank to cash it.
• Any interest you may have earned while the
  money was withheld from you will be added to
  your bank account.
• Holds are often placed on cheques above a
  certain value.
         Cheque Essentials
NSF Cheque (Non-sufficient funds)
• When a cheque is cashed and the
  financial institution learns that theperson
  who wrote the cheque does not have
  adequate funds in his/her bank account to
  cover the amount.
• The person who cashed and wrote the
  cheque will be charged a service fee for
  NSF cheques.
                 Source
• Wilson, Jack et al. The World of Business,
  5th Ed., Nelson Education Ltd., Canada,
  2007