DEPOSITORY INSTITUTIONS: ACTIVITIES AND CHARACTERISTICS

1
Chapter 4

• DEPOSITORY INSTITUTIONS ACTIVITIES AND
  CHARACTERISTICS

2
Asset/Liability Problem

• Spread Income or Margin Income
• Types of Risk
• Credit Risk
• Regulatory Risk
• Interest Rate Risk

3
Liquidity Concerns

• Ways to obtain funds 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
Depository Institutions

• Commercial Banks
• Savings and Loan Associations
• Savings Banks
• Credit Unions

5
Bank Services

• Consumer Banking
• Installment loans, residential mortgage loans,
  credit card loans, brokerage services, student
  loans, etc.
• Global Banking
• Corporate finance, institutional banking
• Commercial real estate finance, leasing,
  factoring
• Capital market and foreign exchange market
  products and services

6
Bank Income

• Bid-Ask spread
• Capital gains on securities and gains on foreign
  currency transactions
• Spread between interest income and cost of funds

7
Sources of Bank Funds

• Deposits
• Demand Deposits
• Time Deposits
• Non-deposit Borrowing
• Fed Discount Window
• Federal Funds Market
• Other Non-deposit Borrowing
• Issuance of Debt Securities
• Retained Earnings and Sale of Equity Securities

8
Bank Regulation

• Interest Rates on Deposit Accounts
• Geographical Restrictions on Branch Banking
• Permissible Activities for Commercial Banks
• Capital Requirements for Commercial Banks

9
Regulation of Interest Rates

• Regulation Q
• Depository Institutions Deregulation and Monetary
  Control Act (1980)
• Garn-St. Germain Act (1982)

10
Geographical Restrictions

• McFadden Act (1927)
• Riegle-Neal Interstate Banking and Branching
  Efficiency Act (1994)

11
Capital Requirements

• Basle Accord on Bank Regulation and Supervisory
  Practices
• Capital adequacy standards
• Risk-based capital guidelines

12
Savings and Loan Associations

• Principal assets
• Mortgages
• Mortgage-backed securities
• Government securities
• Principal sources of funds
• Passbook savings accounts
• Time deposits
• Regulation

13
Factors in The SL Crisis

• Borrowing short and lending long
• Interest rate ceilings on deposits
• Volatile interest rates
• Fraudulent management activities
• High-risk strategies

14
Savings Banks

• Mutually owned or stockholder owned
• Principal assets
• Residential mortgages
• Principal source of funds
• Deposits

15
Credit Unions

• Owned by members
• Principal assets
• Small consumer loans
• Residential mortgages
• Securities
• Principal source of funds
• Member deposits