CML.Week7.Fall2018.pptx - Commercial Banking 6F:114...

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Commercial Banking 6F:114 Commercial Banking Fall 2018 Leighton Smith leighton-s[email protected] 319.325.4928 (m) 319.368.4039 (o)
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Commercial Banking Commercial Banking Week 7 Investments
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Commercial Banking Investments
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Commercial Banking Unit Outline The role of investments Investment securities available Advantages and disadvantages of each Measuring expected returns Risks Taxes, credit, and interest rate risks Liquidity, prepayment, and other risks Investment maturity strategies Maturity management tools
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Commercial Banking Teaching Objectives Know the types of securities in financial institutions’ investment portfolio’s Understand the role of the portfolio Understand the benefits/drawbacks of each type of security Know the factors affecting security choices Be able to calculate investment returns Taxable versus tax free securities Understand maturity profiles and tools used to manage them
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Commercial Banking Investments as a “Crossroads” Account Assets Cash Loans Liabilities Deposits Investment s Non-Deposit Borrowings Sell investments when cash is low Buy investments when cash is high Buy investments when loan demand is low Sell investments when loan demand is high Investments returned when deposits high Investments collateralize non- deposit borrowing when deposits low Also Stabilize and Diversify Income Creates flexibility Window dressing
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Commercial Banking Money Market Instruments Used by a Bank Treasury Bills Short-term Treasury Notes and Bonds Short-term Federal Agency Securities Certificates of Deposit Eurocurrency Deposits Banker’s Acceptances Commercial Paper Short-Term Municipal Obligations
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Commercial Banking Liquidity and Risk of Money Market Securities
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Commercial Banking Other Investments Used by a Bank Capital Market Long term treasury notes and bonds (>1 yr. To maturity) Long term federal agency securities Municipal notes and bonds Corporate notes and bonds Structured Investments Structured Notes Securitized Assets Stripped Securities
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Commercial Banking Securities of MidWestOne (Source FDIC)
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Commercial Banking Investment Breakdowns by Bank Size (12/31/11, Source: FDIC)
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Commercial Banking Factors Affecting the Choice of Securities Expected rate of return Tax exposure Interest rate risk Credit risk Business risk Liquidity risk Call risk Prepayment risk Inflation risk Pledging requirements
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Commercial Banking
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  • Fall '19
  • FDIC, Munis, Risk of Money Market Securities

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