Chapter 3. Banks and Other Financial Institutions

Chapter Learning Objectives:


  • Describe the major financial institutions and their roles in the financial system.

  • Describe the differences between commercial banking and investment banking.

  • Identify the functions of banks and of the banking system.

  • Describe the early history of U.S. depository institutions.

  • Discuss general regulation of the banking system and how depositors' funds are protected.

  • Describe the structure of banks in terms of bank charters, branch banking, and bank holding companies.

  • Briefly describe the bank balance sheet and the major account categories that it contains.

  • Discuss bank management in terms of bank liquidity and bank solvency.

  • Describe liquidity management in terms of asset management and liabilities management.

  • Briefly explain why and how bank capital is managed.

  • Describe the characteristics of several foreign banking systems.

Where We Have Been. . .

In Chapter 2, we presented an overview of the U.S. monetary system. We discussed how the monetary system is intertwined with the savings-investment process, and we identified the major participants in the monetary system. Money has three functions, which are a medium of exchange, a store of value, and a standard of value. An understanding of how money developed in the United States over time, as well as knowing current definitions of the U.S. money supply, will be useful as we move through Part 1. Having an understanding ...

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