Chapter 3 Depository Institutions: Activities and Characteristics
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The document covers the activities and characteristics of depository institutions, including commercial banks, savings and loan associations, savings banks, and credit unions. It discusses asset/liability management, liquidity challenges, the types of risks banks face, as well as funding sources and capital requirements. The document also highlights the regulatory frameworks impacting these institutions and their services.
Chapter 3 Depository Institutions: Activities and Characteristics
- 1. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall1 Depository Institutions: Activities and Characteristics Chapter 3
- 2. Copyright © 2010 Pearson Education, Inc. Pu2 Asset/Liability Problem Spread Income Types of Risk Credit Risk Regulatory Risk Interest Rate Risk
- 3. Copyright © 2010 Pearson Education, Inc. Pu3 Liquidity Concerns Ways to accommodate withdrawals and loan demand Attract additional deposits Use currently-owned securities as collateral for loans from other institutions Raise short-term funds in the money market Sell currently-owned securities
- 4. Copyright © 2010 Pearson Education, Inc. Pu4 Depository Institutions Commercial Banks Savings and Loan Associations Savings Banks Credit Unions
- 5. Copyright © 2010 Pearson Education, Inc. Pu5 Commercial Banks As of Q2 2007, 7350 commercial banks 25% national banks, but holds 65% assets Bank deposits insured by FDIC
- 6. Copyright © 2010 Pearson Education, Inc. Pu6 Asset Size of Banks
- 7. Copyright © 2010 Pearson Education, Inc. Pu7 Top 30 Largest Banks
- 8. Copyright © 2010 Pearson Education, Inc. Pu8 Top 30 Largest Banks (continued)
- 9. Copyright © 2010 Pearson Education, Inc. Pu9 Bank Services Consumer Banking Installment loans, residential mortgage loans, credit card loans, brokerage services, student loans, etc. Institutional Banking Commercial real estate finance, leasing, factoring Global Banking Corporate finance, capital market and foreign exchange market products and services
- 10. Copyright © 2010 Pearson Education, Inc. Pu10 Bank Funding Deposits Demand and Time Deposits Non-Deposit Borrowing Fed Discount Window and Federal Funds Market Retained Earnings and Equity Securities Other Non-deposit Borrowing Issuance of Debt Securities
- 11. Copyright © 2010 Pearson Education, Inc. Pu11 Capital Requirements for Banks Risk-based capital requirements Basel 1 Framework Basel 2 Framework Three “pillars” Minimum risk-based capital requirements Supervisory review of capital adequacy Market discipline through public disclosure
- 12. Copyright © 2010 Pearson Education, Inc. Pu12 Capital Requirements Risk-Based Capital Guidelines Tier 1 (Core Capital) Common stock, certain preferred stock, and minority interest Tier 2 (Supplementary Capital) Loan-loss reserve, certain preferred stock, perpetual debt, hybrid capital instruments, and subordinated debt
- 13. Copyright © 2010 Pearson Education, Inc. Pu13 Credit Risk Weight Capital Requirement
- 14. Copyright © 2010 Pearson Education, Inc. Pu14 Savings and Loan Associations Principal assets Mortgages Mortgage-backed securities Government securities Principal sources of funds Passbook savings accounts Time deposits Regulation
- 15. Copyright © 2010 Pearson Education, Inc. Pu15 Regulation of S&Ls Home Owners Loan Act of 1933 Office of Thrift Supervisor Depository Institutions Deregulation and Monetary Control Act of 1980 Deregulated interest rates on deposits
- 16. Copyright © 2010 Pearson Education, Inc. Pu16 Factors in The S&L Crisis Borrowing short and lending long Interest rate ceilings on deposits Volatile interest rates Fraudulent management activities High-risk strategies
- 17. Copyright © 2010 Pearson Education, Inc. Pu17 Savings Banks Mutually owned or stockholder owned Principal assets Residential mortgages Principal source of funds Deposits
- 18. Copyright © 2010 Pearson Education, Inc. Pu18 Credit Unions Owned by members Principal assets Small consumer loans Residential mortgages Securities Principal source of funds Member deposits
- 19. Copyright © 2010 Pearson Education, Inc. Pu19 Types of Credit Unions National person credit union Provide services to qualified members of the general public Corporate credit union Provides services to national person credit unions
- 20. Copyright © 2010 Pearson Education, Inc. Pu20 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.