Chapter13 - Chapter 13 Commercial Bank Operations Banks are...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter – 13 Commercial Bank Operations
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Banks are profit maximizing firms 1. Highly regulated 2. Majority of liabilities payable upon demand (or within a short time period) Juggling three risks 1. Credit risk 2. Interest rate risk 3. Liquidity risk Significant differences between small and large banks
Background image of page 2
Fewer banks, more branches Less than 8,000 banks today Industry consolidation 1980 15,000 banks Number of Bank offices = 75,000 branches Relaxing of geographical restrictions Many small banks, a few very large banks 82 % of US banks hold only 8% of total banking industry assets The largest 83 banks (about 1% of U.S. banks ) control 73% of total assets
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
HOLDING COMPANIES PREDOMINATE Bank Holding Company” A company owning an interest in at least one bank Over 5,100 BHC’s control 6,300 banks , 96% of all commercial bank assets BALANCE SHEET FOR A COMMERCIAL BANK Uses of Funds = Sources of funds (assets) (Liabilities + Capital) Cash assets Deposit Liabilities Investments Non-deposit liabilities Loans + Leases Capital Accounts Other Assets
Background image of page 4
SOURCES OF FUNDS – liabilities and capital LIABILITIES DEPOSITS : overall largest source, more so for small banks Ahead of all other liabilities in the event of failure. Insured up to $250,000 per individual depositor by FDIC (changed in 2008)
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Types of Deposits 1. TRANSACTION ACCOUNTS 17 % of deposits checks can be written against these funds a) Demand Deposits Non-interest bearing Businesses U.S. Government Tax and Loan Accounts Interbank deposits “correspondent balances” asset small bank liability large bank $ deposited in exchange for services
Background image of page 6
b) NOW Accounts “Negotiable order of withdrawal” Demand deposits that pay interest Available only to individuals, gov’t entities and non-profit organizations 2. SAVINGS DEPOSITS - Savings Accounts 15% of all deposits individuals, non-profits, businesses low interest - Money Market Deposit Account (MMDA) 39% of all deposits Federally insured Limited transactions out of account Open to all bank customers Compete with money market mutual funds
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
3. TIME DEPOSITS
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 27

Chapter13 - Chapter 13 Commercial Bank Operations Banks are...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online