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Definitions |
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Largest Institituions
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Commercial
Saving
Credit unions
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FDIC
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Receiver of failed institutions
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Non depository institutions
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Brokerage houses
Mortgage companies
Insurance companies
Finance companies (Frazier worked for 2 of these )
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Credit Unions Lead in
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Deposits
Consumer Loans
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Many states have separate commercial banking, savings and credit unions authorities
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Management quality
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Senior's officers awareness and control of a depository institution's policies and performance
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State credit unions
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Charter stated credit unions
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Originally the FDIC insured deposits of up to $5000
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TARP
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Allows financial insititutions to sell preferred stock to the U.S. Treasury
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Relationship banking
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Emphasize the personal relationship between the banker and customer. SMALL BANKS
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Result of Crisis
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Negative amortization
Restrictions in credit
Confidence Eroded-Institutions were hesitant to take on credit risk
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Non Financial Business liabilities
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Mortgages
Corporate bonds
Trade Payables
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Tax Management Efficiency
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Net Income/Pre-tax income
higher ratios indicate lower taxes
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Consolidation
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Increase in size of financial institutions and decline in number of small independently owned banks and financial services
- economies of scale
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Safety and soundess
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maintain domestic and international confidence, protect depositors and taxpayers and mantain financial stability
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Investment banks
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underwrote stocks and bonds, and provided brokerage services
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Commercial banks
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specialize in short term business credit, but also make consumer loans and mortgages, and have a broad range of financial powers
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The fund was "well-funded" and banks did not pay a premium from 1996-2005.
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Glass-Steagall Act
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Created three separate lines of business in the financial services industry
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Income Statement
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Compilation of income and expense sources of the Parent and the subsidiares
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Global
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wide array of products for govt., business and individuals. Combine commercial banking, investments, and insurance services.
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asset utilization AU
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total operating revenues/ average total assets
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total operating revenues
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total interest income+non interest income
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commercial banks lead in
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Assets
non deposit borrowing
business loans
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Farm Credit system
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Support the credit needs of agriculture in rural America
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Asset quality
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the relative volume of problem loans and loan losess
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S Corporation Banks
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Have favorable tax treatement because qualifying firm does not pay corporate income tax
The underlying bank must have no more than 100 shareholders
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Commercial banks have been one of the most highly regulated businesses in the U.S.
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Primary asset holdings
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Loans and investments plus trading account assets
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Net Profit Margin NPM
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net income/ total operating revenues
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Banks Generate Money by
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Borrowing Money & Providing services
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Primary reserves
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consist of cash, including banks vault cash and checkable deposits held with other banks or any other funds which are accessible immediately to meet the demands for liquidity made against the bank
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Federal Resrve's Crisis Mgt. Tools
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Term Auction facility
Term Securities Lending Facility
Primary Dealer Credit Facility
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Monetary stability
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The Fed attempts to control the growth in the banking system's liquidity and hence the nation's money supply
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Individual state banking departments
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Charter state commercial bansk and state savings institutions.
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Dual Banking System
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Individual states as well as the federal government, issue bank, saving bank, and credit union charters.
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FDIC Corporation Improvement Act,
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Both state chartered and national banks must apply to FDIC for deposit insurance
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Branch Banking
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A retail outlet in which customers can conduct their banking business either face to face with bank representatives or electronically via ATMS
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Multi BHC or MBHC
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Control at least two commercial banks
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Mobile Bankking
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the use of cell phones to conduct banking business
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net non interest margin
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(non interest income- non interest expense)/ average total assets
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Discount rate
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rate charged on credit given by the Federal Reserve Bank, through the Discount Window
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Typical Smaller Community Banks
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have four basic departments or devisions centered on lending, fund raising, operations and marketing.
daily operations are usually monitored by cashier and or auditor and by VP in charge of each department
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Open Market Operations
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consists of buying & selling of securities by the central bank in an effort to influence and shape the course of interest rates and the growth of money & credit.
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benefits of national charter
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1.brings prestige due to stricter regulations and helps attract customers
2. in time of trouble the technical assistance given may be better ensuring a better chance of long term survival
3. OCC fights for preemption of state laws and regulations
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Earnings per share EPS
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net income/ # of outstanding shares
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Key Federal Legislation 2001-2006
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Title III of the USA Patriot Act
Sarbanes Oxley Act
Check 21
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Effective depository institution regulation
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A delicate balance between the banking system's competitiveness and general safety and soundess
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Tenets to achieve sustained economic growth
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Freed Trade
Deregulation of Financial Services
Macroeconomic stability
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three major things analysts consider when comparing banks
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size, location and product composition
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closing selected branch offices
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can reduce operating costs and divert resources form less profitable to more profitable ones. however it risks alienating good customer relationships unless it can serve those same customers with its remaining facilities
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What does the source of charter determine?
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How the institution is regulated
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Gramm Leach Bliley Act of 1999
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Repealed the restrictions on banks affiliating with securities firms under the Glass Steagall Act and modified portions of the BHC Act to allow affiliations between banks and insurance underwriters.
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benefits of state charter
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1. easier and less costly to get
2. the bank does not need to join the fed reserve and therefore avoids buying and holding low yield stock
3. many states let a bank lend more to one borrower as a % of capital
4. may be able to make types of loans or offer services which a national chartered bank cannot
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main competitors in the financial services
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thrift institutions like credit unions and savings associations and financial services firms such as finance companies, insurance companies and mutual funds.
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Goals and functions of depository institution regulation
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To ensure safety and soundness of depository institutions and financial instruments
To provide an efficient and competitive financial system
To provide monetary stability
To maintain the integrity of the nation's payments system
To protect consumers from abuses by credit-granting insitutions
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Bank Holding cOmpany Act of 1956
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Limited banks to specific types of business activities
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two ways to use financial ratios
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1.examine the performance of a firm over time
2. compare the performance of one firm with another firm or peer group
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to increase short term interest rates by decreasing bank reserves
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fed would sell securities in OMO, increase the discount rate or increase the reserve requirements
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Size distribution of american banks and the concentration of industry assets inside the US
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largest banks in US make up 6.9% of all FDIC insured banks, they control 88.3% of all industry assets
this is the result of strong trend towards consolidation and convergence
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