Bank Sources of Funds --        Liabilities and Capital (continued)             Capital Notes and Bonds -- Nondeposit,   ...
Liabilities and Capital 9/30/2010                                                                           Small      Med...
Liabilities and Capital (1955-2010)Fin 421 - Commercial Bank Operations          3
Uses of Funds -- Bank Assets             Cash assets             Federal Funds sold represent excess reserves           ...
Bank loans             Loans are generally more risky than the              investment portfolio.             Bank loans...
Commercial and industrial loans        represent the major loan category        of banks.             Bridge loans -- a b...
Other Loans             Loans to depository institutions -- loans to              respondent banks, S&Ls, and foreign ban...
Other Loans (concluded)             Consumer loans to individuals                – most are paid back in installments    ...
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  1. 1. Bank Sources of Funds -- Liabilities and Capital (continued)  Capital Notes and Bonds -- Nondeposit, noninsured, subordinated long-term notes and bonds.  Bank Capital Accounts – a source of funds. – an equity base for deposits. – a residual, at risk source of funds from shareholders that is used to absorb losses and protect depositors.Fin 421 - Commercial Bank Operations 1
  2. 2. Liabilities and Capital 9/30/2010 Small Medium-Sized Large All Insured Commercial Banksa Banksb Banksc Banksd e e e eLiabilities and Capital Accounts Billions Percent Percent Percent PercentLiabilitiesDeposits, Total $8,373 69 84 83 67 Noninterest-bearing $1,634 13 14 12 14 Interest-bearing $6,739 56 71 71 54Borrowed Funds, Total $1,902 16 3 6 17 Federal funds purchased and securities sold under Repurchase Agreements $565 5 0 2 5 Trading liabilities $318 3 0 0 3 Other borrowed money $1,019 8 3 4 9Subordinated notes anddebentures $149 1 0 0 1All other liabilities $328 3 1 1 3Total liabilities $10,752 89 88 90 89Capital AccountsCommon and Preferred Stock $1,091 9 7 6 9Undivided profits $288 2 5 4 2Total equity capital $1,379 11 12 10 11Total liabilities and equitycapital $12,130 100 100 100 100Number 6622 2383 3731 508 Fin 421 - Commercial Bank Operations 2
  3. 3. Liabilities and Capital (1955-2010)Fin 421 - Commercial Bank Operations 3
  4. 4. Uses of Funds -- Bank Assets  Cash assets  Federal Funds sold represent excess reserves sold to other banks for a short period of time.  Bank investments provide income and liquidity. – U.S. Treasury securities offer safety, liquidity, collateral, and income. – U.S. government agency securities provide safety and income. – Municipal securities provide income and a tax shield.Fin 421 - Commercial Bank Operations 4
  5. 5. Bank loans  Loans are generally more risky than the investment portfolio.  Bank loans consist of promissory notes -- a financial asset similar to securities.  Banks make fixed rate or floating rate loans.  Many loans are secured by collateral; others are unsecured.Fin 421 - Commercial Bank Operations 5
  6. 6. Commercial and industrial loans represent the major loan category of banks.  Bridge loans -- a business financing agreement with repayment coming from the completion of the agreement.  Seasonal loans -- financing of varying working capital needs over a year with repayment coming from the reduction in working capital.  Long-term asset loans -- financing equipment over several years with repayment coming from future profits and cash flows of the borrower.Fin 421 - Commercial Bank Operations 6
  7. 7. Other Loans  Loans to depository institutions -- loans to respondent banks, S&Ls, and foreign banks.  Real estate loans -- fixed or variable rate long- term loans – residential mortgage loans – commercial and industrial loansFin 421 - Commercial Bank Operations 7
  8. 8. Other Loans (concluded)  Consumer loans to individuals – most are paid back in installments – includes credit card and purchase credit  Bank Credit Cards -- credit extended to consumer at the time of purchase and/or cash advance: – once local, credit card networks are now worldwide – bank earns fees from annual fee, merchant discount and interest on revolving credit balancesFin 421 - Commercial Bank Operations 8

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