Institutions of the U.S. Banking System

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  • 0:06 Commercial Banks
  • 0:51 Savings & Loan Associations
  • 1:29 Credit Unions
  • 2:04 Investment Banks
  • 3:25 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

The United States banking system is diverse and consists of many different types of institutions. In this lesson, you'll learn about commercial banks, savings and loan associations, credit unions, and investment banks.

Commercial Banks

Meet Connie, a commercial banker. When you think of a bank, you are probably thinking about a commercial bank. Her commercial bank is a depository institution. At her commercial bank, Connie accepts deposits from individuals and businesses who place their money in the bank in a savings, checking, or money market account. Connie will keep some of her customers' deposits in reserves so she can have money available when the customers want it.

However, most of the deposits will be used to loan money to individuals and businesses that want to borrow it. In fact, loaning money is the primary way a commercial bank like Connie's makes money. Banks also often offer investment services, such as CDs and IRAs. Some commercial banks even have their own credit cards.

Savings & Loan Associations

Meet Sam who works at a savings and loan association. Sam's savings and loan association accepts deposits like commercial banks. However, unlike a commercial bank, a savings and loan association is owned by the people that deposit money in it. Also, unlike commercial banks, who lend money for a variety of reasons, the primary business of a savings and loan association is to lend its deposits to people seeking to buy houses. However, Sam's business has expanded quite a bit because savings and loan associations have moved into providing services like those provided by commercial banks, such as checking account services.

Credit Unions

Now meet Chris who works at credit union. Credit unions are nonprofit. The members of a credit union are the very people that deposit money with it. Credit unions are established to serve a particular group of people, such as teachers or employees of a particular company. The idea is to provide cheaper banking to members than provided by commercial banks. You can do this if you are not trying to earn a profit for your owners. Nowadays, credit unions provide most of the same services as a commercial bank to its members. Chris can set up a checking and savings account, help finance the purchase of a home, or restructure a member's debt.

Investment Banks

Meet Isabella who works as an investment banker. An investment bank is an entirely different kettle of fish from the other banking institutions we've discussed so far. Isabella and investment banks are involved in raising capital for government and businesses rather than loaning them money.

Isabella works on initial public offerings, commonly referred to as IPOs. Her investment bank will either underwrite the issue or do its work on a best-efforts basis. An issue just refers to the issuance of stock or another type of security, such as a corporate or municipal bond.

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