Final Exam Study Guide/Formula Sheet

Final Exam Study Guide/Formula Sheet - Chapter 17 Best...

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Chapter 17 Checkable deposits : accounts that allows depositor to write checks to third parties, lowest cost funds Nontransaction accounts : cannot write checks Bank capital : funds supplied by bank owners Secondary reserves : short-term treasury debt Asset transformation : bank uses deposits to make mortgage loan. Borrow short, lend long Bank manager 4 primary concerns : liquidity, asset, liability, capital adequacy management. Excess returns are insurance against costs from deposit outflows Capital adequacy management : decision about amount of capital. Bank capital prevents bank failure, returns for owners, min. amt. is required Bank keeps capital to lower chance of insolvency ROA=NI/Assets; ROE=NI/Equity; EM= Assets/Equity; ROE=ROA*EM; NIM=(II- IE)/Equity Capital EM ROE ROA=NP/A; ROE= NP/Equity; NIM=(ii-ie)/A Off-balance-sheet activities : trading fina. Instru. & generating income from fees & loan sales Chapter 18 FDIC methods : payoff method(allows bank to fail & pays off deposits), purchase & assumption method(reorganizes bank/finds merger partner) Moral hazard : incentive to take on greater risk Adverse selection : those most likely to produce bad outcome are most likely to take adv. of the benefits 9 categories of bank regulation : gov’t safety net, restrictions on asset holdings, bank capital requirements, prompt corrective action, financial supervision: chartering & examination, assessment of risk management, disclosure requirements, consumer protection, restrictions on competition Bank capital requirements : leverage ratio(capital/assets)>5%, capital>8% of risk-weighted assets & off balance sheet activities Mark to market accounting : assets values in BS at what they can sell for in market FDICIA : recapitalize bank insurance fund & reform deposit insurance/regulatory system so taxpayer losses are minimized Dodd-Frank : consumer fin. Prot. bureau(regulates mortgages), resolution authority(gov’t granted authority over FIs who pose risk to financial system), systemic risk regulation(monitor asset bubbles), Volcker rule (banks limited in trading own money & cannot own some hedge/PE funds), regulate derivatives, capital requirements, compensation, GSEs, Credit rating agencies Chapter 19 Reigle-Neal Act : allows full interstate branching promotes further consolidation Glass-Steagall: commercial separate from investment bank GLB
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  • Spring '14
  • Debt, Adverse selection, Bank Capital, Capital Adequacy Management

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