Lecture Notes - Banking

Lecture Notes - Banking - Click to edit Master subtitle...

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Unformatted text preview: Click to edit Master subtitle style Law and Regulation of Depository Institutions Some Terms and Concepts You Should Know Banking Regulators n OCC n OTS n FDIC n FRB n NCUA n Dual Banking System n Types of Depositary Institutions n Branching and Interstate Expansion n LPOs, DPOs n Deposit Insurance n Safety and Soundness n CAMELS Rating system n Capital ratios n Risk based capital ratio (risk weighting of assets) n Reserves n Deposit Reserves n Reserving for Loan Losses (allowance for Loan Losses ALL) Banking General Characteristics of banks, thrifts and CUs n Authorized to accept deposits (Depository Institutions) n Chartered, not mere corporate business entities n Categories based on historical evolution, fall into various types: n National banks (commercial) and state commercial banks; trust companies: all commercial tended to address needs of commerce and wealthy n Savings banks or associations (also known as thrifts) serve smaller depositor more often state chartered or, said another way Depository Institutions n FDIC or NCUA deposit insurance required n May have either a state or federal charter with federal or state regulator (dual banking system ) n State banks have both state and federal regulator; federal banks and thrifts only have federal regulator but primary and secondary Money Banking Example of how a simple early American - bank evolved : [Class Exercise: n Early 1800s were characterized by numerous state- chartered or private banks, many of whom issued their own banknotes, which circulated as money. n Lack of uniform capital requirements and over-leverage of capital resulted in high risk of insolvency and unstable financial environment. Starting a Bank - Class Exercise 1. Initial Capitalization n in gold - What does balance sheet look like? (Assets Liabilities Capital) 1. First Loan a. What is the bank going to loan? Gold? 1. Need a form of instrument that can circulate, people will recognize 2. No federal reserve no single US money 3. Notes: what are they? What does a note say? 4. What is a banknote? Issuer (Bank) agrees to honor the promise to pay and will recognize it as legal obligation that represents unit of money. 5. How is loan transaction reflected on a banks balance sheet? (Continued - Issuance of Bank n Examples of early lending: n Option 1 - Lend the gold (reduces the gold as an asset) n Option 2 - Exchange the Bank Notes for the Gold n The result is a note, drawn against the Bank (i.e. a promise by the bank to redeem the note for gold) n Balance sheet reflects bank note as liability, where contra-asset is the gold Starting a Bank - Class Exercise...
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This note was uploaded on 12/03/2008 for the course LGLS 412 taught by Professor Hodgkin during the Fall '08 term at Bryant.

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Lecture Notes - Banking - Click to edit Master subtitle...

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