CFP exam takers should be familiar with the function, purpose and regulation of financial institutions.

References:
Keown, Personal Finance: Turning Money into Wealth, 3rd Edition,Chapter 5
Downes, Goodman, Dictionary of Finance and Investment Terms, 5th Edition

Banks

Types of banks
What the typical consumer thinks of as a bank actually could be one of several types of financial institutions engaged in the business of accepting deposits and making loans.

  1. Commercial banks - Large depository institutions offering the widest variety of financial services. Operate large branch networks that stretch across multiple states. Serve both consumer and business customers, though business loans account for the majority of their lending business. Generally stock corporations whose primary obligation is to make a profit for shareholders.
  2. Savings and loan associations (S&Ls) - Obtain the bulk of their deposits from consumers and hold most of their assets in the form of home mortgages. Pay dividends rather than interest to depositors.
  3. Savings banks - Like S&Ls, savings banks accept primarily consumer deposits and issue home mortgages and pay dividends rather than interest to depositors. Most are mutual institutions, meaning they are owned by depositors. Located primarily in New England, New York and New Jersey. Smaller in scale than commercial banks.
  4. Credit unions - A not-for-profit cooperative made up of members with some type of common bond, such as employees of the same company, members of the same labor union or the same religious denomination. Because of tax-exempt status, a credit union may offer higher interest rates to deposits and lower rates to borrowers.

Banking regulation
Depending on the type of institution, a bank may be regulated by several different types of regulators simultaneously. The major banking regulators:
  1. Federal Reserve Board - Examines and sets reserve requirements for member banks. Acts as clearinghouse for transfer of funds throughout the banking system.
  2. Office of the Comptroller of the Currency - Oversees federally chartered national banks. Only the Comptroller of the Currency can declare a national bank insolvent.
  3. Office of Thrift Supervision - Oversees federally chartered savings and loan associations and federal savings banks.
  4. State banking regulators - Regulate state-chartered banks located within their individual states.
  5. National Credit Union Administration - Oversees federal credit unions and insures member deposits.


Brokerage and Insurance Companies

Related Articles
  1. Investing

    What is a Bank?

    A bank is a financial institution licensed to receive deposits or issue new securities to the public.
  2. Investing

    Introduction To The Chinese Banking System

    As China steps into a greater role in the global economic system, their banking system continues to evolve.
  3. Insights

    What Do the Federal Reserve Banks Do?

    These 12 regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy and provide payment services.
  4. Insights

    A Brief History of U.S. Banking Regulation

    From the establishment of the First Bank of the United States to Dodd-Frank, American banking regulation has followed the path of a swinging pendulum.
  5. Insurance

    How the Federal Deposit Insurance Corporation (FDIC) Works

    Learn more about the Federal Deposit Insurance Corporation (FDIC) and what happens to your deposits over $250,000 if a member bank fails.
  6. Personal Finance

    Retail Banking Vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers.
  7. Financial Advisor

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  8. Insurance

    Insurance Companies Vs. Banks: Separate And Not Equal

    Insurance companies and banks are both financial intermediaries. However, they don't always face the same risks and are regulated by different authorities.
  9. Insights

    The Role of Commercial Banks in the Economy

    We interact with commercial banks daily to carry out simple financial tasks. That said, the function and creation of a commercial bank is anything but simple.
Frequently Asked Questions
  1. How do you calculate r-squared in Excel?

    Calculate R-squared in Microsoft Excel by creating two data ranges to correlate. Use the Correlation formula to correlate ...
  2. What is the Difference Between International Monetary Fund and the World Bank?

    Learn about the International Monetary Fund and the World Bank and how they are differentiated by their respective functions ...
  3. Where Did the Bull and Bear Market Get Their Names?

    The terms bull and bear are used to describe general actions and attitudes, or sentiment, either of an individual (bear and ...
  4. What's the difference between Google's GOOG and GOOGL stock tickers?

    Learn the difference between Google's GOOG and GOOGL ticker symbols. Splitting shares into classes prevents management from ...
Trading Center