Topic: What is a bank?

Author: Anna Rabiega

Addressee:

8th grade primary school student

Core curriculum:

Expanded material for gifted students.

The general aim of education:

The student has a basic knowledge of the banking system.

Learning outcomes:

The student:

• presents the history of banking and explains why such an institution was created.

• examines what the banking system is and what institutions it is made up of.

• explains the functions of the central bank.

Key competences:

• communicating in a foreign language,

• digital competence,

• learning to learn,

• social and civic competences,

• sense of initiative and entrepreneurship.

Teaching methods:

• discussion,

• snowball method,

• fishbowl conversation,

• teaching conversation using interactive scheme, interactive exercises.

Forms of work:

• self‑learning,

• work in pairs,

• group work,

• whole‑class activity.

Material & equipment needed:

• computers with loudspeakers/headphones and internet access,

• multimedia resources from the e‑textbook,

• interactive whiteboard/blackboard, felt‑tip pen/a piece of chalk.

Lesson plan overview (Process):

Introduction:

1. The teacher presents the goal of the lesson: You will learn how the banking system works.

2. The teacher informs the class that they will use a fishbone diagram and explains what it is, if necessary. On the board, the teacher draws a fish skeleton and in the „head” of the fish, the teacher writes the exercise subject: „What do banks do?”. The students share their ideas on how to supplement the main and smaller fish bones with examples of things that can be done in a bank (also electronically). At the end of the exercise, the teacher asks a willing/selected student to summarise the exercise.

Implementation:

1. The teacher informs the class that they will use the snowball method and explains what it is, if necessary. The students' task will be to create a definition of the term „bank”. First, each student creates a definition on their own and writes it down on a sheet of paper. Then the students form pairs and agree on a joint definition. Afterwards, the students form groups of four, eight, etc., each time negotiating the content of the definition. The exercise ends when a definition of the term „bank”, formulated by all the students, is written on the board.

2. The teacher informs the students that the banking system includes commercial banks and a central bank. The teacher asks the students in what aspects they think these institutions differ from each other. During a teaching conversation, the teacher helps the students to understand the most important differences between the central bank and the commercial banks, as well as the most important functions of these institutions.

3. The teacher writes down on the board the three most important functions of the central bank (bank, central bank of the state, issuing bank) and asks the students to explain what their understanding of these functions is. Willing/selected students present their ideas. After listening to and commenting on the students' propositions, the teacher displays the „Three main functions of the central bank” scheme on an interactive whiteboard and provides an explanation of each function. The teacher asks the students to study the diagram and to say whether they have been able to correctly determine what the function was or what was missing in their propositions. The teacher repeats this process for each function separately. At the end of the exercise, the teacher asks willing/selected students to define with their own words what each of the three functions of the central bank means.

4. The teacher initiates a discussion on the independence of central banks. The discussion will have the form of a fishbowl conversation. If necessary, the teacher explains this method to the students. The teacher divides the classroom into two groups – the people who will actively participate in the discussion and the observers. The first group sits in a circle and presents arguments for and against the independence of central banks, while taking into account the functions that this institution must perform. The other group observes and stands around the panellists. They analyse the course of the discussion in terms of the selection and effectiveness of arguments, observance of the rules and the general flow of the conversation. The goal of this method is first of all to learn from each other and to improve the ability of presenting arguments.

5. Afterwards, the teacher asks a willing/selected student to summarize the discussion from his/her point of view, and another willing/selected student to summarize the counter‑arguments for this standpoint. The observers comment on the quality of the discussion and its value in terms of content.

6. In order to sum up the previous tasks, the teacher asks the students to solve Exercise 1.

Summary:

1. At the end of the class, the teacher asks the students the following question: What do you think you still have to learn about the central bank and the commercial banks to be satisfied with your knowledge and skills?

Willing/selected students share their opinions.

2. Homework proposal:

a. Should the central bank be independent from other state authorities? Outline three arguments for the independence of this institution and describe how the central bank's independence is guaranteed in Poland. Do you see any potential threats to this independence? What could be their consequences?

b. Listen to the abstract recording to review the material and new vocabulary. Then do the vocabulary exercise at the end of the chapter.

The following terms and recordings will be used during this lesson

Terms

Texts and recordings

What is a bank?

As money facilitated economic exchange, financial institutions – especially banks – are there to help other economic entities (so‑called non‑financial entities, i.e. households, enterprises, but also the state government) in their functioning.

Why were the banking institutions established? Because non‑financial entities started to accumulate more money than they could spend (this surplus is savings) and some of them began to report the need for additional funds (hence the emergence of loans and credits). If there were no banks, a person who wanted to finance, for example, a building of a house, would have to look for another person who would grant her a loan. Of course, it would not be easy to find someone who would have money available to loan at the same time (often a considerable amount) and would be willing to risk the borrower not paying back the entire loan. At the same time, a person wishing to invest their savings would be doomed to look for someone who would like to trade these funds and give them back after the agreed period, of course along with profit. However, she would not be sure that she would find a willing person and, more importantly, that she would be able to trust someone and entrust her with the money. Thanks to banks, we do not have such problems. This is what the special role of banks in the economy is based on.

What is a bank?

A bank is a financial intermediary institution, an enterprise providing services to non‑financial entities. All banks operating in the economy create a banking system. The banking system mainly consists of:

• central banks – representing the national public interest or the interest of a monetary community,

• commercial deposit and credit banks – banking companies that maximize profits.

The banking system also consists of all legal norms determining the organization, scope and principles of operation of banks. The institutions that supervise its functioning play an important role in this system. It should be emphasized that organizational forms and the structure of banking systems are not identical in all countries.

The name „bank” is derived from the Italian “banco”, meaning “the bench”, a counter at which Italian traders who transferred gold coins from one client to another. The certificates issued by them (so‑called depository receipts) began to function as money (modern banknotes) as well as coins. When the settlement took too long, the impatient customers would break the bankers' benches, causing loss to their business. Often this led to bankruptcy (“bancarotta” from: banco – bench, rotto – broken).

Central banks are the main element of the monetary power of a state or a monetary union. In the structure of power, the central bank is responsible for the money supply (i.e. the amount of money on the market) and conducts monetary policy.

The central bank should be independent of the government in terms of its policy. The most important goal is to ensure price stability. Nowadays, central banks, by price stability, consider inflation so low that it does not have a negative impact on decisions made by participants in economic life, including those regarding investment and saving. Ensuring price stability is the basic way in which the central bank contributes to achieving high and sustainable economic growth.

Banks are just as important as money in the economy – they improve its functioning. The most visible effect of the lack of banks and the banking system would be the functioning of the money flow in the economy almost exclusively in the form of cash. We would have to keep the money for current expenses and any savings in their physical form, bearing the risk of losing them as a result of damage, loss or theft. In the era of online transactions and non‑cash settlements, it is difficult to imagine an economy without these institutions.