Ch_10_Funding_the_Bank

Ch_10_Funding_the_Bank - Funding the Bank 11 The...

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Funding the Bank 11
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The Relationship Between Liquidity n The amount of cash that a bank holds is influenced by the bank’s liquidity requirements n The size and volatility of cash requirements affect the liquidity position of the bank n Deposits, withdrawals, loan disbursements, and loan payments affect the bank’s cash balance and liquidity position 22
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The Relationship Between Liquidity n Recent Trends in Bank Funding Sources n Bank customers have become more rate conscious n Many customers have demonstrated a a strong preference for shorter-term deposits n Core deposits are viewed as increasingly valuable n Bank often issue hybrid CDs to appeal 44
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The Relationship Between Liquidity n Recent Trends in Bank Funding Sources n Retail Funding n Deposit Accounts § Transaction accounts § Money market deposit accounts § Savings accounts § Small time deposits 55
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The Relationship Between Liquidity n Recent Trends in Bank Funding Sources n Borrowed Funding n Federal Funds purchased n Repurchase agreements n Federal Home Loan Bank borrowings 66
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The Relationship Between Liquidity n Recent Trends in Bank Funding Sources n Wholesale Funding n Includes borrowed funds plus large CDs n Equity Funding n Common stock n Preferred stock n Retained earnings 77
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The Relationship Between Liquidity n Recent Trends in Bank Funding Sources n Volatile (Managed) Liabilities n Funds purchased from rate-sensitive investors § Federal Funds purchased § Repurchase agreements § Jumbo CDs § Eurodollar time deposits § Foreign Deposits n Investors will move their funds if other 88
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The Relationship Between Liquidity n Recent Trends in Bank Funding Sources n Core Deposits n Stable deposits that customers are less likely to withdraw when interest rates on competing investments rise n Includes: § Transactions accounts § MMDAs § Savings accounts § Small CDs 99
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Characteristics of Retail-Type n Retail Deposits n Small denomination (under $100,000) liabilities n Normally held by individual investors n Not actively traded in the secondary market 1313
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Characteristics of Retail-Type n Transaction Accounts n Most banks offer three different transaction accounts n Demand Deposits § DDAs n Negotiable Order of Withdrawal § NOWs n Automatic Transfers from Savings § ATS 1414
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Characteristics of Retail-Type n Transaction Accounts n Demand Deposits n Checking accounts that do not pay interest n Held by individuals, business, and governmental units § Most are held by businesses since Regulation Q prohibits banks from paying explicit interest on for-profit corporate checking accounts 1515
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Characteristics of Retail-Type n Transaction Accounts n NOW Accounts n Checking accounts that pay interest n ATS Accounts n Customer has both a DDA and savings account n The bank transfers enough from savings to DDA each day to force a zero balance in the DDA account n For-profit corporations are prohibited from owning NOW and ATS accounts 1616
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Characteristics of Retail-Type n Transaction Accounts
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Ch_10_Funding_the_Bank - Funding the Bank 11 The...

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