Banking and Monetary Policy_Butkiewicz_Date__040610

Banking and Monetary Policy_Butkiewicz_Date__040610 - banks...

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Chapter 9 continued 16: vault cash= in the bank - increase net worth; increase safety of the bank 17: both sides of the balance sheet add up 19: examples are free income: overdrawn checks 21: total income from assets= 7.60 + (outside $-5) = 12.60 22: banks raise equity by selling stock, to make it attractive ROE must be comparable to other companies while still making a return for the bank 23: innovators have generated competition—money market mutual funds 26: like liquidity of checking/saving account - Normal environment it will be between 4-5% 28: dilemma: want banks to be safe yet for them to remain profitable/attract capital, have to engage in more risk 29: rely—less on checking deposits and more on borrowing 31: C&I loans are loans to businesses (have declined) 34: eager because of “tying”—trying to make customers use one service because are using another 35: banks charge fees to try to supplement their income - Fear that bank doesn’t have enough money then may be a bank run and in order to do this
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Unformatted text preview: banks have to sell assets at fire sale prices (discount or “big haircut”) 39: can cover withdrawals and not lose anything but will be less profitable 40: borrow money—pay interest but does not but net worth 41: default= subtract it from your net worth 42: customers= less safe because you have lost 25% of your net capacity 43: a lot of mortgage loans= 30 years (with locked/set interest rates) 44: higher interest rate will reduce banks earnings; blue= affected by change in interest rate 46: business loans= more variable interest rates 47: initial rate= often low (teaser rate) 48: first two years have low teaser rate then adjust up for market 28 years (2/28) 51: risk of default to loan customers increases in recession (less business in general) 52: regulators do not want banks to fail 53: owe $100, only have $90—you have -10 net worth and are out of business 55: higher ER= lower ROE 61: TARP—bailouts...
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Banking and Monetary Policy_Butkiewicz_Date__040610 - banks...

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