Bank - a financial institution that regulates money flow for regular market circulation.
Financial institutions (or financial intermediaries):
209. Financial intermediaries ( ) -are institutions that serve as go-between linking savers and borrowers.
210. Depository institutions ( ) - are commercial banks and other financial institutions (savings and loan associations, mutual savings banks, and credit unions) that obtain funds by accepting deposits from the public.
211. Other financial intermediaries ( ) - finance companies, insurance companies, and pension funds - acquire funds by collecting premiums or by borrowing.
Depository institutions can be classified broadly into two types: commercial banks and thrift institutions.
212. Commercial banks ( ) - are depository institutions that make short-term loans primarily to businesses rather than to households.
Until recently, commercial banks were the only depository institutions that offered demand deposits, or checking accounts.
213. Demand deposits ( ) - are accounts on which depositors can write checks to obtain their deposits at any time.
214. Thrift institutions (or thrifts) ( ) - are financial institutions that make long-term loans primarily to households.
215. Savings and loan association (- ) - a firm which is owned by stockholders, accept deposits primarily from small individual savers, and lends primarily to individuals to finance the purchases of residences.
216. Mutual savings bank (- ) - a firm without stockholders which accept deposits primarily from small individual savers and which lends primarily to individuals to finance the purchases of residences.
217. Credit union ( ) - associations of persons who are employed at the same firm or are members of the same labor union, which sells shares to (accepts deposits from) its members and makes loans to them.
218. The Federal Reserve System ( ) - is the central bank and monetary authority of the United States; consists of 12 regional banks, but key policy decisions are made by the Board of Governors in Washington.
219. Central bank ( ) - is government-operated bank whose chief function is the control of the nation's money supply; holds reserves of commercial banks.
220. Federal Reserve Bank ( ) - is any one of the twelve banks chartered by the United States government to control the money supply and perform other functions.
221. Federal Open Market Committee ( ) - the twelve-member group that determines the purchase-and-sale policies of the Federal Reserve Banks in the market for United States government securities.
222. Open market operations ( ) - the buying and selling of US government securities by the Federal Reserve Banks intended to change the economy's supply of money.
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223. Discount rate ( ) - the interest rate which the Federal Reserve Banks charge on the loans they make to depository institutions.
How depository institutions operate:
224. Net worth of the bank ( ) -is the difference between a bank's assets and its liabilities.
225. A liability (, , ) -is anything that is owned to another individual or institution; a debt with a monetary value.
226. The bank's balance sheet ( ) - a statement of the assets, liabilities, and net worth of the bank.
Assets = liabilities + net worth
Reserve accounts:
Banks are required by the Federal Reserve System to hold in reserve a certain percentage of their deposits.
227. The required reserve ratio ( ) -is the proportion of deposits that a depository institution must hold in the form of reserves.
228. Required reserve (legal reserve) ( ) - the specified minimum percentage of its deposit liabilities which member bank must keep on deposit at the Federal Reserve Bank in its district, or in vault cash.
229. Vault cash ( ) - the currency a bank has in its safe (vault) and cash drawers.
230. Excess reserve ( ) - the amount by which a member bank's actual reserve exceeds its required reserve; actual reserve minus required reserve.
231. The federal funds market ( ) - provides for day-to-day lending and borrowing of reserves among depository institutions.
232. The federal funds rate ( ) - is the interest rate prevailing in the federal funds market.
233. A bank holding company ( ) - is a corporation that owns banks.
234. Sterilization ( ) - is the process whereby the Federal Reserve System uses open market operations to offset the effects of its foreign currency transactions on the domestic money supply.
