Lecture Notes - Banking

Lecture Notes - Banking - LawandRegulationof...

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Click to edit Master subtitle style Law and Regulation of  Depository Institutions
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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)
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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
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…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
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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. 
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Starting a Bank c. 1800s  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 bank’s balance sheet?
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(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
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Starting a Bank - Class Exercise  3. Accepting Deposits
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This note was uploaded on 02/23/2010 for the course LGLS ? taught by Professor ? during the Spring '10 term at Bryant.

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Lecture Notes - Banking - LawandRegulationof...

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