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100 Cards in this Set
- Front
- Back
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Sarbanes-Oxley Act
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A federal law intended to improve the governance of public corporations by holding boards of directors, management, and auditors to high standards of conduct and accountability.
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Charter
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A document issued by a federal or state supervisory agency granting a bank the right to do business.
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Who a issues national bank charters?
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The Office of the Comptroller of the Currency for national commercial banks or the Office of Thrift Supervision for savings banks.
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Who issues state bank charters?
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The state supervisory agency in which it is organized.
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Corporation
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A business organization treated as a legal entity and owned by a group of shareholders (stockholders). The shareholders elect the directors, who serve as the governing body managing the corporation's affairs. A bank may be publicly owned or closely held. A publicly owned company is a corporation.
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Board of Directors
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The governing body of a corporation ultimately responsible for its financial performance, consisting of individual directors elected by the shareholders.
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Chief Executive Officer (CEO)
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Often the chairman of the board, is responsible for the policies that guide the bank.
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Chief Operating Officer (COO)
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The bank's president, is responsible for applying those policies and supervising operations.
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Bank Holding Company (BHC)
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A company that has control over one or more banks or other BHCs. It does not have to be large to choose a BHC structure. BHCs may engage in financial activities through nonbank subsidiaries that bank themselves are not allowed to engage in, such as securities brokerage and underwriting stocks and bonds.
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Sample Bank Holding Company Activities
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Issue credit cards, provide trust services, sell general and portfolio investment advice, sell property insurance through finance company subsidiaries, lease personal and real property
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BHCs are under the jurisdiction of _________________ for commercial banks and ___________________ for savings banks?
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the Federal Reserve
the Office of Thrift Supervision |
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Financial Holding Company (FHC)
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Allow banks, insurance companies, brokerage firms, and securities dealers to affiliate under common ownership and offer customers a complete range of financial services.
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Interstate Banking
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BHCs and FHCs can own banks in more than one state, which facilitates interstate banking.
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Gramm-Leach-Bliley Act
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Authorized financial holding companies (FHCs) so that banks and other businesses could engage in a broad array of finance related activities.
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Why do depositors choose to save their money in a bank?
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Banks are a secure way for depositors to safeguard their savings. They also pay depositors for the use of their money in the form interest on savings accounts. Customers benefit from deposit accounts because they offer a safe, easy way to clear checks and pay bills.
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How do loan customers benefit?
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Loans significantly increase the buying power of customers and improve their quality of life by making it possible for them to make large purchases. W/O loans many consumers would be unable to buy a house or a car. Businesses use loans to expand their markets, buy inventory and equipment, buy other companies, and modernize their facilities.
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Most important reason for maintaining a relationship with a bank.
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Convenience
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Cross-selling
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A marketing and sales practice whereby additional products and services are offered to a current customer. Examples: a safe deposit box, checking account with auto payment to ensure the mortgage is paid on time, a homeowner's policy through the insurance subsidiary.
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Community Reinvestment Act (CRA)
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A federal law mandating that federal bank regulators regularly evaluate how financial institutions help meet the credit needs of their communities, including low and moderate income sections of the community, and publicly rate the bank's performance.
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Payment System
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A communication system that permits the exchange of information necessary to carrry out transfers of funds. The payment system extends from the point of acceptance to the paying bank.
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Outsourcing
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The practice of turning over part or all of a bank's operations to a third-party provider.
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National Bank Act of 1863
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In 1863 Congress passed the National Currency Act, later renamed the National Bank Act. The act set up a new state and federal banking system in the United States. It contained provisions that created the OCC and national banks; introduced the national banknote; and established a system of required reserves.
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Office of Comptroller of the Currency (OCC)
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Created by the National Bank Act as a bureau of the US Department of Treasury to charter, examine, and issue regulations governing national banks. The OCC is headed by the Comptroller, who is appointed by the president and approved by the Senate.
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OCC Objectives
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-ensure the safety and soundness of the national banking system.
-foster competition by allowing banks to offer new products and services -improve efficiency and effectiveness of OCC supervision -Ensure fair and equal access to financial services for all Americans. |
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Dual Banking System
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The banking system in the United States today in which a bank may be chartered by either the state or the federal government.
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How to distinguish national banks from state banks?
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To distinguish national from state banks, the former are required to include the word "national" in their name--for example, Union National Bank or add the words "National Association"(abbreviated as "N.A." to their name, as in Liberty Bank, N.A.
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Reserve Requirement
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A mandate that each bank set aside a portion of its cash assets against its outstanding deposits. Today reserve requirements are managed by the Federal Reserve as part of its monetary policy duties and apply only to the deposits in transaction accounts.
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Float
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The dollar amount of deposited cash items (checks) that have been given immediate provisional credit but have not yet been collected from drawee banks. Also called uncollected funds.
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Federal Reserve Act, 1913
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National check clearing system
-12 Federal Reserve districts, reduced float, faster check collection Decentralized reserves -reserve requirements, bank reserves kept within each Federal Reserve district, local control over banks Federal Reserve notes -notes backed by Fed Reserve assets of securities and gold, basic form of US currency today |
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Problems with the 1863 National Bank Act
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-Difficulties with check collection
-Inflexible currency -Pyramiding of Reserves |
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Pyramiding of Reserves
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The reserve patterns of banks before the Federal Reserve System was authorized. Smaller banks would place their reserves in larger banks, which would then place their reserves and those of the smaller banks in money center banks such as those in New York City.
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Federal Reserve Act of 1913 Solutions
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-National check clearing system
-Federal reserve notes -Decentralized reserves |
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Buying on Margin
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Using borrowed funds, plus some equity, to buy assets such as stocks.
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What caused the blow to the national economy?(Great Depression)
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-Paying interest on Demand Deposits
-Underwriting securities(stocks) -No Margin Requirements -No Depositor Protection -Illiquid Banks |
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Banking Act of 1933
(contains sections referred to as the Glass-Steagall Act) 1-3 |
Prohibited banks from paying interest on demand deposits, raised the minimum capital requirements of national banks, Prohibited banks that were members of the Federal Reserve System from underwriting securities and affiliating with organizations dealing in securities.
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Banking Act of 1933
(contains sections referred to as the Glass-Steagall Act) 4-5 |
Allowed the Federal Reserve Board to forbid member banks to use reserve credit for speculative purposes, created the Federal Deposit Insurance Corporation to protect depositors at FDIC-insured banks.
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Securities Exchange Act of 1934
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Gave the Federal Reserve authority to set margin requirements. All loans made by banks that accepted securities as collateral were subject to the margin requirements.
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Banking Act of 1935
(also called the Federal Deposit Insurance Act of 1935) |
This act amended the Banking Act of 1933 and authorized the FDIC to: set standards for operations at FDIC member banks, examine member banks to ensure that the comply, take action to reduce the possibility of troubled banks failing, pay depositors of an insured bank fails
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Usury
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The act of charging a higher rate of interest than is allowed by state law.
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Disintermediation
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The withdrawal of money from a financial institution and deposit of the funds in another type of investment product in order to earn higher interest.
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Banks
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Publicly or privately owned companies, chartered by the state or federal government, which accept demand deposits, make loans, and provide other financial services. Most are commercial banks, which make loans to businesses as well as individual.
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Credit Unions
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Organizations that offer financial services to members who by law must share a common bond, such as being teachers or federal employees. Because credit unions are exempt from federal taxes, off a range of services, and often occupy employer provided facilities, they have minimal expenses and can offer products and services at reduced cost to their members.
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Savings and loan associations (S&Ls)
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Originally chartered to provide mortgage loans to customers. Offered higher interest rates on deposits until interest rate ceilings were removed for banks in the 1980's
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Savings Banks
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Member owned or stock companies, many were formerly S&Ls associations and operate the same ways.
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Brokerage Firms
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Firms that arrange contracts for customers to purchase stocks, bonds, and mutual funds.
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Finance Companies
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Specialists in making small to medium sized loans to consumers or small businesses.
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Insurance Companies
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Sellers of risk protection. These companies accumulate funds received from premiums and place them in relatively risk-free, long-term investments, such as mortgages.
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Mutual Funds
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Organized collections of investment funds. Their sole activity is investing funds, usually in a diversified securities portfolio.
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Money Market Funds
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Portfolio investors, like mutual funds, but only in short term instruments, typically with a three-month average maturity. Investments include certificates of deposit, commercial paper, US T-bills
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Mortgage Companies
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Firms that specialize in financing loans banked by real estate.
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Check cashing firms
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Companies that cash checks for consumers for a fee. Many "unbanked" consumers use these companies.
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NOW Account
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An interest-earning transaction account against which check like instruments (negotiable orders of withdrawal) may be drawn. This transaction account is not a demand deposit account: the bank must reserve the right to require the depositor to give 7 days advance notice before withdrawing funds.
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Transaction Account
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A checking or similar account from which transfers can be made to third parties. Demand-deposit accounts, NOW accounts, automatic transfer service (ATS) accounts, and credit union share draft accounts are examples of transaction accounts at banks and other depository institutions.
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Depository Institutions Deregulation and Monetary Control Act of 1980
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This act redefined banking powers to allow banks and S&Ls to offer new products and S&Ls and credit unions to offer commercial loans and trust services.
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Garn-St Germain Depository Institutions Act of 1982
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This act allowed banks and other depository institutions to offer the money market deposit account(MMDA)
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Money market deposit account (MMDA)
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A type of savings account created in 1982 that pays a market interest rate and gives account holders limited check-writing privileges.
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Super NOW Account
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A transaction account that is interest-bearing and offers a higher interest rate than a NOW account, but less than a money market deposit account. As a transaction account, it is subject to reserve requirements and has no limit on monthly transaction volume.
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Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
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Full interstate banking across the country, regardless of prior federal law or state law, was allowed. Affiliate banks within BHCs could function as branches for each other. National banks could operate branches by acquiring banks in other states.
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Gramm-Leach-Bliley Act (1999)
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Repealed key provisions of the Banking Act(Glass-Steagall Act) of 1933 and gave banks the tools they needed to compete. Banks, securities firms, and insurance companies can enter each other's businesses and affiliate with each other. Banks may now offer a full complement of financial services, from loans and deposits to life insurance and mutual funds.
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Activities authorized by GLBA are:
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-lending, exchanging, transferring, and investing for others
-safeguarding money or securities for others. -underwriting and selling insurance -securitization -securities underwriting and dealing -"closely related to banking" activities approved for BHCs by the Fed Reserve Board -merchant banking and equity investments |
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Merchant Banking
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The buying and selling by banks of unregistered securities in companies.
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USA Patriot Act
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After 9/11. This act places responsibilities on financial institutions to track and prevent the illegal transfer of funds by, for example: adopting and enforcing anti-money-laundering programs, implementing customer ID programs, reporting certain currency to the government, report suspicious activities to the government
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The FACT Act
(The Fair and Accurate Credit Transaction Act of 2003) |
Contains provisions to prevent identity theft, improve consumer access to their credit reports, enhance the accuracy of credit reports, and limit the sharing of certain consumer information.
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Corporate governance
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The manner in which directors, management and auditors handle their responsibilities to shareholders.
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Federal Reserve System
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Central bank of the US, 12 districts each containing a Federal Reserve Bank with a board of directors, the Reserve Bank is owned by member banks in the district, which hold stock in the Reserve Bank. Our district is #5 in Richmond.
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Fed's Duties
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-Conduct monetary and credit policy
-Supervise and regulate banks -Maintain the stability of the financial system -Provide financial services -Control of the US money supply is the primary duty of the Fed. |
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Discount window
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The lending facility of each regional Federal Reserve Bank through which depository institutions may borrow short term to meet temporary liquidity needs and cover reserve deficiencies.
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Open market operations
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Purchases and sales of government and certain other securities in the open market through the Domestic Trading Desk at the Federal Reserve Bank of New York to influence the volume of money and credit in the economy.
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Federal Reserve Services
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-Coin and Currency
-Check processing -Fedwire -ACH -Settlement -Services to the US government |
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Automated Clearing House(ACH)
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The Fed is the primary provider of ACH services, which are paperless electronic debit and credit transactions, such as direct deposit of payroll and social security checks and utility bills. As with checks, the Fed sorts ACH transactions and presents them to the paying or receiving bank.
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5 Regulators with the authority to supervise bank activities?
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-Federal Reserve System
-OCC -FDIC -OTS -State banking Departments |
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Edge Act Corporation
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Established under the Federal Reserve Act, a corporation that is a national bank subsidiary for either foreign trade-related banking or foreign investment.
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Regulation
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More specific than the law and contains more explanatory material, such as procedures that banks can follow to ensure compliance. It also has the force of law.
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Federal Register
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A daily publication of the federal government that contains, among other material, proposed and final regulations adopted by Federal agencies.
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Point of Sale (POS)
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A terminal used to transfer funds from a bank account to a retailer to pay for purchases.
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Demand Deposit
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Funds that a customer may withdraw from a bank with no advance notice, usually by writing a check or using an ATM.
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Share Drafts
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A bill payment device offered by some credit unions. Members of a credit union can write these check like instruments against their savings share accounts.
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Liability
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1) An amount owed. 2) A source of financing, such as a deposit in a bank. 3) a legal obligation to make good loss or damage that results from an action or transaction.
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Time Deposit Accounts
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Have specific maturity dates.
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Checking Account
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A transaction that offers check writing priviledges. Some accounts offer ATM, check debit cards, or both, so customers can make withdrawals at an ATM or payments at POS facilities.
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Statement Savings Account
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An account that pays interest on deposits periodically. Account transfers are limited to 6 per month.
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MMDA
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First introduced by brokerage firms. Usually has a higher yield than a savings account. Limits monthly transfers to 6, 3 by check, and 3 by preauthorization.
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Certificate of Deposit (CD)
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A time deposit with a fixed maturity, and a fixed interest rate tied to the maturity and the purchase amount.
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Business Checking Account
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A business transaction account through which other services are accessed, such as night deposits, merchant services, and cash management services.
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Concentration account
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A central account for all deposits not invested. Used to gather deposits from other accounts or from other financial institutions, usually electronically. Also used to fund disbursement accounts.
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Disbursement account
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Usually a zero-balance account funded by the concentration account when payments must be made. Any excess funds at the end of the day are transferred to the concentration account.
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Customers may make deposits in a number of different ways:
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ATM, teller window, night depository, direct deposit(paychecks), payroll card, automatic transfer services(ATS)(checking to savings), EFT, remote deposit capture, wire transfer, mailed deposit, courier and armored services.
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Automated Clearing House (ACH)
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A clearing facility operated for the convenience of banks in a particular region, generally through the regional Federal Reserve Bank. An ACH electronically processes interbank credits and debits.
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Overdraft
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A negative balance in a customer's checking account.
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Remote Deposit Capture
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An electronic banking service that uses EFT and imaging technology. Checks received at business locations are scanned to create an image, which is then transmitted in encrypted form over the Internet to the bank for deposit.
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Consumer Account Ownerships
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-Individual
-Joint -Fiduciary |
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Power of Attorney
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A legal document that authorizes a person named as an agent(attorney-in-fact) to act on behalf of another person(the principal).
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Joint Accounts
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-Joint Tenancy- "or" , Only one signature is required on the check
-Tenancy-in-Common- "and" , account holders must act together. Both signatures are required. |
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Fiduciary
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An account opened by a representative for the benefit of another person. Examples are trust accounts, estate accounts, guardianship accounts
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Business Account Ownerships
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-Sole Proprietorship
-Partnerships -Corporation -Government or Agency Ownership -Unincorporated Organization |
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Partnership agreement
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A legal agreement stating the contributions each partner has made to the business, the nature of the business, and each partner will share in profits or losses.
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Corporate resolution
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A document filed with a bank that defines the authority given to the corporation's officers and specifies who may sign checks, borrow on behalf of the corporation, and otherwise conduct business and issue instructions to the bank.
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Customer Identification Program (CIP)
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The USA PATRIOT Act requires financial service providers, including banks, to set up a customer identification program (CIP) for new accounts.
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Electronic Fund Transfer Act
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Establishes the rights, liabilities, and responsibilities of parties to electronic funds transfers.
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Truth in Savings Act
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Requires that banks give customers the information they need to compare deposit account features.
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