Mishkin8-Ch9-Lecture1

Mishkin8-Ch9-Lecture1 - Chapter 9 Principles of Bank...

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Unformatted text preview: Chapter 9 Principles of Bank Management 1. Liquidity Management 2. Asset Management • Manage credit risk- get borrowers with low default risk, paying high interest rates • Buy securities with high return, low risk • Diversify • Manage interest-rate risk 3. Liability Management • Important since 1960s • Banks no longer primarily depend on deposits • When see loan opportunities, borrow or issue CDs to acquire funds • Manage interest-rate risk 4. Capital Adequacy Management UWCU Balance Sheet Assets Liabilities + NW Cash (7.5%) Deposits (88%) Share Draft (15%) Investments (6%) Regular Share (15%) MMA (29%) Loans (82%) CDs (25%) Consumer (20%) IRAs (4%) Mortgage (46%) Student (16%) Borrowings (2.5%) Building (4.5%) Net Worth (9.5%) YOA - COF = NIM + Fee/Other Income- Operating Expense- PLL = Net Income * Required ROA = Asset Growth Rate x Capital Ratio (dependent variable) (choice variable) (current) ROA vs Interest Rates 1988-2007 70 80 90 100 110 120 130 140 150 160 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 1 2 3 4 5 6 7 8 9 10 ROA Line 2 Fed Funds 10-yr Treas Percent ROA basis points Deposit Pricing Stylized Facts Deposit rates respond more slowly to a sustained rise in money market rates than they do to a sustained fall....
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This note was uploaded on 03/27/2008 for the course ECON 330 taught by Professor Rick during the Spring '08 term at University of Wisconsin.

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Mishkin8-Ch9-Lecture1 - Chapter 9 Principles of Bank...

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