Chapter 9 Outline

Chapter 9 Outline - Click to edit Master subtitle style...

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Unformatted text preview: Click to edit Master subtitle style 5/12/09 Department of Department of Chapter 9: Banking and the Management of Financial Institutions Econ 330: Money and Banking Fall 2007 Prof. Joseph Santos This outline draws from Frederic Mishkin’s Money, Banking and Financial Markets (2007) and, as such, contains copy written material. Please do not quote without proper citation. 5/12/09 Department of Department of [1] The Bank Balance Sheet [1] The Bank Balance Sheet [2] Liabilities [3] Assets [4] Basic Banking [5] Liquidity Management [6] Asset Management [7] Liability Management [8] Capital-Adequacy Management [9] Managing Credit Risk [10] Managing Interest-Rate Risk [11] Off-Balance-Sheet Activities This outline draws from Frederic Mishkin’s Money, Banking and Financial Markets (2007) and, as such, contains copy written material. Please do not quote without proper citation. 5/12/09 Department of Department of [2] Liabilities • Checkable deposits – Non-interest-bearing checking accounts (demand deposits), interest-bearing NOW (negotiable order of withdrawal) accounts, and money market deposit accounts. – These are usually the lowest-cost source of bank funds because depositors are willing to forgo some interest in order to have access to liquidity services. – The bank’s costs of maintaining these accounts include interest payments and the costs incurred in servicing these accounts. • Non-transaction deposits – Savings accounts and time deposits • Borrowings – Banks obtain funds by borrowing from their holding companies, the Fed, the Federal Home Loan Banks, other banks, corporations, and Eurodollar markets. • Bank capital is a cushion against a drop in the value of a bank’s assets. This drop could force the bank into insolvency – a situation where liabilities exceed assets. [1] The Bank Balance Sheet [2] Liabilities [3] Assets [4] Basic Banking [5] Liquidity Management [6] Asset Management [7] Liability Management [8] Capital-Adequacy Management [9] Managing Credit Risk [10] Managing Interest-Rate Risk [11] Off-Balance-Sheet Activities This outline draws from Frederic Mishkin’s Money, Banking and Financial Markets (2007) and, as such, contains copy written material. Please do not quote without proper citation. 5/12/09 Department of Department of [3] Assets • Reserves – Banks hold reserves for the following two reasons. • To satisfy required reserves • To hold excess reserves as insurance against unexpected withdrawals. • Cash items in the process of collection • Deposits at other banks – Many small banks hold deposits in larger banks in exchange for a variety of services, including check collection, foreign-exchange transactions, and securities purchases. This is an aspect of the banking system called correspondent banking....
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This note was uploaded on 04/09/2008 for the course ECON 330 taught by Professor Santos during the Spring '08 term at SD State.

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Chapter 9 Outline - Click to edit Master subtitle style...

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