Ch17_Commercial Bank Overview

Ch17_Commercial Bank Overview - Chapter17...

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Financial Markets and Institutions Chapter 17 Commercial Bank Overview
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Financial Markets and Institutions Commercial Banks as Financial  Intermediaries Commercial banks serve all types of  surplus and deficit units Offer deposit accounts with the size and  maturity characteristics desired by surplus  units Repackage funds received from deposits to  provide loans of the size and maturity desired  by deficit units
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Financial Markets and Institutions Differences in Balance Sheets Commercial Banks Nonfinancial Firms Assets Liabilities Assets Liabilities Loans Deposits Deposits Loans Other Other financial financial assets assets Other Other Other Other non- liabilities non- liabilities financial and financial and assets equity assets equity
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Financial Markets and Institutions Exhibit 17.1 Consolidation among  Commercial Banks over Time
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Financial Markets and Institutions Bank Market Structure Banks are continuing to consolidate: Interstate regulations were changed in 1994 to  allow banks more freedom to acquire banks  across state lines The number of banks today is about one-half that  existed in 1985 The largest 100 banks now represent about 75  percent of all bank assets
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Financial Markets and Institutions Bank Market Structure (cont’d) Bank participation in financial conglomerates Some commercial banks have acquired other  types of financial service firms Conglomerates are composed to various units  offering specialized services Impact of the Financial Services Modernization  Act (the Gramm-Leach- Bliley Act)
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Financial Markets and Institutions Bank Market Structure (cont’d) Benefits of diversified services to individuals  and firms Benefits of diversified services to financial  institutions
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Financial Markets and Institutions Bank Sources of Funds A financial institution’s liabilities represent  its sources of funds Deposit Accounts Borrowed Funds Long-Term Sources of Funds
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Financial Markets and Institutions Bank Sources of Funds (cont’d) Deposit Accounts Transaction deposits demand deposit account  (checking account) is  offered to customers who desire to write checks A conventional account requires a small minimum  balance and pays no interest negotiable order of withdrawal (NOW)   account   provides checking services as well as interest but  requires a larger minimum balance Electronic transactions
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Financial Markets and Institutions Savings deposits Until 1986, Regulation Q restricted the interest rate  banks could offer on passbook savings Ceilings prevented commercial banks from competing for  funds during periods of higher interest rates An  automatic transfer service (ATS) account
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Ch17_Commercial Bank Overview - Chapter17...

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