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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall1
Depository Institutions:
Activities and
Characterist...
Copyright © 2010 Pearson Education, Inc. Pu2
Asset/Liability Problem
Spread Income
Types of Risk
Credit Risk
Regulator...
Copyright © 2010 Pearson Education, Inc. Pu3
Liquidity Concerns
Ways to accommodate withdrawals and
loan demand
Attract ...
Copyright © 2010 Pearson Education, Inc. Pu4
Depository Institutions
Commercial Banks
Savings and Loan Associations
Sav...
Copyright © 2010 Pearson Education, Inc. Pu5
Commercial Banks
As of Q2 2007, 7350 commercial banks
25% national banks, b...
Copyright © 2010 Pearson Education, Inc. Pu6
Asset Size of Banks
Copyright © 2010 Pearson Education, Inc. Pu7
Top 30 Largest Banks
Copyright © 2010 Pearson Education, Inc. Pu8
Top 30 Largest Banks (continued)
Copyright © 2010 Pearson Education, Inc. Pu9
Bank Services
Consumer Banking
Installment loans, residential mortgage loan...
Copyright © 2010 Pearson Education, Inc. Pu10
Bank Funding
Deposits
Demand and Time Deposits
Non-Deposit Borrowing
Fed...
Copyright © 2010 Pearson Education, Inc. Pu11
Capital Requirements for Banks
Risk-based capital requirements
Basel 1 Fra...
Copyright © 2010 Pearson Education, Inc. Pu12
Capital Requirements
Risk-Based Capital Guidelines
Tier 1 (Core Capital)
...
Copyright © 2010 Pearson Education, Inc. Pu13
Credit Risk Weight Capital Requirement
Copyright © 2010 Pearson Education, Inc. Pu14
Savings and Loan Associations
Principal assets
Mortgages
Mortgage-backed ...
Copyright © 2010 Pearson Education, Inc. Pu15
Regulation of S&Ls
Home Owners Loan Act of 1933
Office of Thrift Superviso...
Copyright © 2010 Pearson Education, Inc. Pu16
Factors in The S&L Crisis
Borrowing short and lending long
Interest rate c...
Copyright © 2010 Pearson Education, Inc. Pu17
Savings Banks
Mutually owned or stockholder owned
Principal assets
Reside...
Copyright © 2010 Pearson Education, Inc. Pu18
Credit Unions
Owned by members
Principal assets
Small consumer loans
Res...
Copyright © 2010 Pearson Education, Inc. Pu19
Types of Credit Unions
National person credit union
Provide services to qu...
Copyright © 2010 Pearson Education, Inc. Pu20
All rights reserved. No part of this publication may be reproduced,
stored i...
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Chapter 3 Depository Institutions: Activities and Characteristics

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Chapter 3 Depository Institutions: Activities and Characteristics
Foundations of Financial Markets and Institutions 4th edition 2009
Frank J. Fabozzi
Franco Modigliani
Frank J. Jones

Published in: Business, Economy & Finance
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Chapter 3 Depository Institutions: Activities and Characteristics

  1. 1. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall1 Depository Institutions: Activities and Characteristics Chapter 3
  2. 2. Copyright © 2010 Pearson Education, Inc. Pu2 Asset/Liability Problem Spread Income Types of Risk Credit Risk Regulatory Risk Interest Rate Risk
  3. 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. 4. Copyright © 2010 Pearson Education, Inc. Pu4 Depository Institutions Commercial Banks Savings and Loan Associations Savings Banks Credit Unions
  5. 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. 6. Copyright © 2010 Pearson Education, Inc. Pu6 Asset Size of Banks
  7. 7. Copyright © 2010 Pearson Education, Inc. Pu7 Top 30 Largest Banks
  8. 8. Copyright © 2010 Pearson Education, Inc. Pu8 Top 30 Largest Banks (continued)
  9. 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. 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. 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. 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. 13. Copyright © 2010 Pearson Education, Inc. Pu13 Credit Risk Weight Capital Requirement
  14. 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. 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. 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. 17. Copyright © 2010 Pearson Education, Inc. Pu17 Savings Banks Mutually owned or stockholder owned Principal assets Residential mortgages Principal source of funds Deposits
  18. 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. 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. 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.

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