Chapter 8 Financial Institutions and Services 179
is discussed in Chapter 9, savings accounts in Chapter 11, and investment
services in Chapter 12.
Types of Financial Institutions
In the past, fi nancial institutions were more specialized. Each type of
institution offered a distinct set of services to a specifi c set of customers.
Deregulation, computer technology, and recent economic conditions have
made these institutions more alike. Following are brief descriptions of
fi nancial institutions and their services.
Commercial Banks
A commercial bank is owned by stockholders and operated for profi t.
Its primary functions are to receive, transfer, and lend money to individu-
als, businesses, and governments. Commercial banks are often called full-
service banks. They offer a wide variety of services.
These banks may be chartered by the federal government or by a state
government. Federally chartered banks are called national banks and
may use the word national in their names. These banks must comply with
federal banking regulations. State chartered banks are regulated by state
banking commissions.
The Federal Deposit Insurance Corporation (FDIC) is a U.S. govern-
ment agency that protects bank customers by insuring their deposits. It
also examines and supervises fi nancial institution policies and opera-
tions. Its goal is to help maintain consumer and
business confi dence in the banking system. To
do this, the FDIC insures bank deposits. This
guarantees that depositors are protected if their
bank fails or cannot repay deposits on demand.
See 8-2.
In the past, the FDIC insured $100,000 of a
customer’s total deposits in a given bank. This
amount has been temporarily increased to
$250,000 until the end of 2013. Then, in 2014, it
will revert to $100,000.
Suppose a depositor has $240,000 in savings
and $10,000 in a checking account at the bank.
All $250,000 would be returned by the FDIC to
its owner if the bank were unable to pay. On the
other hand, if the person has $256,000 in check-
ing and savings deposits, FDIC insurance covers
all but $6,000.
It is possible for that customer to have a
separate type of account at the bank (such as
a business account). In this case, the total of
the customer’s accounts is insured up to $250,000. If the person opens an
account at another bank, the FDIC also insures this account for $250,000.
8-2
Accounts in commercial banks
are insured by the FDIC.