Never before has the difference between your local
community bank and the Wall Street and non-traditional
financial institutions been more apparent than in
today’s financial services marketplace.
Remember the good old days when you could easily
identify a bank. Today, there are several different
types of “banks”:
- Community Banks are locally owned and
managed by a local board of directors and
characterized by local lending decisions, local
investment and civic involvement in their
communities. Community banks are chartered in your
state, or may have “national” or “N.A” in their
name, which connotes a federal charter. They are, in
most cases, small businesses. The vast majority of
banks in the United States are “community banks”.
- Mega-Banks could be defined as those
multi-billion dollar banks that are “too big to
fail.” They operate across multiple state lines, and
are engaged in a multitude of financial services
related businesses.
- Investment Banks work with companies or
other entities who want to raise capital. These
banks generally do not accept customer deposits.
- Central Banks are responsible for
managing monetary policy. In the United States, the
Federal Reserve is the central bank empowered to
conduct monetary policy and enforce regulations of
financial institutions.
- Savings Banks were originally created to
promote affordable home ownership. While the number
of thrift charters has declined since the 1980s,
many still exist throughout the United States and
are effectively traditional banks. They are insured
by the FDIC as are commercial banks. Generally,
these entities are distinguishable only with the
addition of the initials “SSB” – state savings bank,
or “FSB” – federal savings bank.
- “Offshore” Banks are chartered outside of
the United States, and frequently in the Caribbean.
While many of these entities are perfectly
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legitimate, you should use caution
prior to investing or depositing your money into any
entity with a “deal that is too good to be true”.
During the past few years, the lines have become blurred
when talking about financial institutions. Many people
confuse other types of financial institutions with banks
because of some of the services they provide.
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Online banks are a
relatively new banking concept. They are driven
strictly by the Internet with no brick and mortar
buildings. While there is no personal touch, some
prefer the convenience and speed of the Internet.
Don’t confuse “online banks” with “online banking.”
Most traditional banks offer online banking services
for their customers, but should a problem arise, you
can go to a brick and mortar building to talk to a
bank representative.
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Payday lenders provide
small, short-term loans, usually $500 or less,
intended to cover a borrower’s expenses until the
next payday. According to Wikipedia, finance charges
on payday loans are typically in the range of 15 to
30 percent of the amount for the two-week period,
which translates to rates ranging from 390 percent
to 780 percent when expressed as an annual
percentage rate.
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Credit unions like to
position themselves as banks. However, they are not
subject to some of the strict banking regulations of
traditional banks and are not required to adhere to
the Community Reinvestment Act (CRA), which requires
banks to serve the needs of the communities in which
they are located. Additionally, credit unions are
not subject to federal income tax or a number of
state and local taxes.
Consumers should remember that banks
and other financial institutions are not public
utilities, but rather private businesses with
shareholders expecting a return on their investments.
Dramatic developments over the past months have created
some concerns and many questions as several of the
largest institutions in the country have received
substantial government assistance. This is a rapidly
changing world; however, the bottom line is that the
FDIC insurance fund is backed by the United States
government, and your deposits are
CONSUMER TIPS is provided as a public
service by the Missouri Independent Bankers Association
AND
Community Bank of the Ozarks
P.O. Box 43
Sunrise Beach, MO 65079
(573) 374-5245
1-800-927-4314
www.cbobanker.com
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