Page 145 - Bus101FlipBook

CH 8] Business 101 8-11

Table 8.2 Major Financial Institutions: Sources and Uses of Funds
Source: Federal Reserve System.

Typical Types of Accounts Primary Sources
Institution Investments Offered to Depositors of Funds

Deposit Institutions
Commercial bank Personal loans Checking accounts Customer deposits
Business loans NOW accounts Interest earned on loans
Increasingly involved in real Passbook savings accounts
estate construction and Time deposits
home mortgage loans Money market
deposit accounts

Savings and loan Bond purchases Savings accounts Customer deposits
association Home mortgages NOW accounts Interest earned on loans
Construction loans Time deposits
Money market
deposit accounts

Savings bank Bond purchases Savings accounts Customer deposits
Home mortgages NOW accounts Interest earned on loans
Construction loans Time deposits
Money market
deposit accounts

Credit union Short-term consumer loans Share draft accounts Deposits by credit
Increasingly involved Savings accounts union members
in making longer- Money market Interest earned on loans
term mortgage loans deposit accounts

Non-deposit Institutions
Insurance Corporate long-term loans Premiums paid by
company Mortgage of commercial real policyholders
estate—major buildings/ Earnings on investments
shopping centers
Government bonds

Pension fund Some long-term mortgages on Contributions by
commercial property and member employees
business loans and employers
Government bonds Earnings on investments
Corporate securities

Commercial and/or Short-term loans to Interest earned on loans
consumer businesses (commercial Sale of bonds
finance finance companies) Short-term borrowing
company Individual consumer loans from other firms
(consumer finance companies)

treasury management to name a few. Although earnings in the banking sector
can fluctuate wildly based on the economic climate, annual revenue is projected 8
to reach almost 490 billion dollars by 2021. The leading commercial bank in
America is J.P. Morgan Chase, which earned over 142 billion U.S. dollars in
revenue in 2019. J.P. Morgan Chase was also the leading issuer of commercial
bank cards in that same year.
The numbers of banks changes because of mergers and acquisitions with
other financial institutions. Commercial banks are profit-making businesses
that perform two basic functions: they hold the deposits of individuals and
business firms in the form of checking and savings accounts pay them interest commercial bank
for the funds deposited with them; and they loan those funds to individuals and Profit-making business that
holds deposits of
business for interest payments. Figure 8.2 illustrates how a commercial bank individuals and businesses
performs these two functions. in the form of checking or
savings accounts and uses
Types of Commercial Banks these funds to make loans
to individuals and
Prior to 1863 all commercial banks were state controlled, and chartered only businesses.
by the banking commissions of the states they were doing business in. The
Copyrighted Material