Page 464 - Business Principles and Management

Chapter 17 • Financial Services

The FDIC charges member banks premiums for the cost of insurance. The
corporation also closely regulates banks to make sure they have adequate capi-
tal. If a bank becomes undercapitalized (having a risky loan volume in relation
to assets), the FDIC can force the bank to take corrective action, including a
change in management. It can even force the bank to close if the problems are
not corrected. Only bank deposits are insured. Many banks now offer a variety
of other financial products, but these are not covered by the FDIC insurance.

NCUSIF Credit unions are not members of the FDIC. However, credit unions that
are members of the National Credit Union Association (NCUA) have a similar fed-
eral insurance plan. The National Credit Union Share Insurance Fund (NCUSIF)
has offered protection for member deposits since 1970.

CHECKPOINT

Identify and briefly describe the three main types of banks.

Nonbank Financial Institutions

Nonbank financial institutions have grown rapidly because of the many valuable
financial services they offer. Many customers value being able to obtain many of
their financial services through one organization. An important reason for the
growth of nonbank institutions is that they convinced lawmakers to reduce the
restrictions on the traditional banking services they could offer, such as demand
and time deposits. Based on those changes, traditional banks asked for the capa-
bility to offer a broader range of financial services, such as investments and
insurance, that they previously could not legally offer. The resulting competi-
tion has led to an emerging group of full-service financial institutions, consoli-
dation of businesses in the industry, and many new forms of products and
Career tip
customer services.

TYPES OF NONBANKS
According to the Ocupa-
Nonbanks exist in many forms. Stock brokerage firms, for example, not only buy
and sell stocks and bonds but also offer checking privileges and even credit card tional Outlook Handbook,
services. The stock brokerage firm of Merrill Lynch, for example, also provides employment in the securities
mortgages, insurance policies, and credit card services for customers. On the other and financial investments
hand, banks are now allowed to sell stocks and bonds if they wish. Insurance com- industry is expected to grow
panies and business pension funds are also nonbank financial institutions that offer 15.8 percent by 2014. That
long-term loans in large amounts to eligible businesses. Nonbanks also include high growth rate reflects the
investment companies such as mortgage, insurance, and finance businesses as increased number of baby
well as investment firms. Fierce competition for banking and other financial ser- boomers in their peak sav-
vices has benefited consumers through better and more abundant financial prod- ings years and moving into
ucts and services at lower cost. retirement. It also recognizes
the jobs that will be created
in international finance in
FINANCE COMPANIES A finance company specializes in providing installment loans response to the globalization
and leases to consumers and businesses. Unlike banks, it does not accept deposits of the securities markets.

451