15: Understanding Money and Financial Institutions

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Learning Objectives

After reading this chapter, you should be able to answer these questions:

What is money, what are its characteristics and functions, and what are the three parts of the U.S. money supply?
How does the Federal Reserve manage the money supply?
What are the key financial institutions, and what role do they play in the process of financial intermediation?
How does the Federal Deposit Insurance Corporation (FDIC) protect depositors’ funds?
What roles do U.S. banks play in the international marketplace?
What trends are reshaping financial institutions?

15.0: Introduction
This page discusses the influence of financial institutions in U.S. and global economies, defining money and its characteristics while outlining the U.S. money supply and the Federal Reserve's role. It highlights important financial institutions and the Federal Deposit Insurance Corporation's protective function.
15.1: Show Me the Money
This page discusses the definition and characteristics of money, essential for economic stability. It outlines money's functions: medium of exchange, standard of value, and store of value. The U.S. money supply is categorized into M1, which is readily available, and M2, which includes time deposits. The Federal Reserve manages the currency supply according to public demand and economic conditions.
15.2: The Federal Reserve System
This page outlines the Federal Reserve's role in managing the U.S. money supply to maintain economic stability since its establishment in 1913. It highlights the Fed's monetary policy tools and actions during the 2007-2009 financial crisis, including a $9 trillion loan program to stabilize the economy. The aftermath prompted the Dodd-Frank Act's introduction in 2010, enforcing stricter regulations and annual stress tests for banks to enhance their financial resilience and prevent future crises.
15.3: U.S. Financial Institutions
This page discusses the U.S. financial system's role in promoting economic growth through financial intermediation. Key institutions such as commercial banks, thrift institutions, and credit unions facilitate borrowing and savings, with credit unions offering competitive rates due to their non-profit status. The rise of P2P payment systems challenges traditional banking, highlighting the importance of integrating digital services with personal interactions, especially for younger clients.
15.4: Insuring Bank Deposits
This page discusses the Federal Deposit Insurance Corporation (FDIC), created by the Banking Act of 1933 to insure deposits at banks and thrift institutions up to $250,000. It regulates around 4,000 banks, ensuring compliance with laws through annual reviews and intervening in troubled banks to stabilize the system. After the 2007-2009 financial crisis, the FDIC works with the Federal Reserve to maintain strong bank balance sheets, aiming to prevent future crises.
15.5: International Banking
This page highlights the vital role of U.S. banks in the global marketplace, providing loans, currency exchange, and trade services, while expanding their international presence. They often outperform local banks in customer service but face challenges like strict regulations, competition from foreign banks, and government protections in markets like China. Despite these obstacles, U.S. banks continue to significantly impact the economy and job creation domestically and internationally.
15.6: Trends in Financial Institutions
This page outlines how financial institutions are evolving due to regulatory changes, a focus on operational efficiency, and technological advancements. It highlights trends such as enhanced customer engagement through data analytics, the rise of fintech disrupting traditional banking, and the shift towards digital interactions over traditional branch services.

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