ch12 - DepositoryFinancial Institutions Chapter12...

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    Depository Financial  Institutions Chapter 12
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    The Fundamentals of Bank  Management  Banks are business firms that buy  (borrow) and sell (lend) money to make  a profit Money is the raw material for banks— Repackagers of money Financial claims on both sides of  balance sheet Liabilities—Sources of funds Assets—Uses of funds
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    Bank Assets Total loans increased from 53% of total  assets in 1970 to 62% in 1990—most  increase coming from mortgages Decline in cash and investments in state and  local government securities Holdings of federal government securities is  fairly constant—highly marketable and liquid Counter-cyclical—increase during recessions and  decrease during expansions Banks treat federal securities as a residual use of  funds
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    Commercial Bank Assets Loans Securities  Cash Assets
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    Loans  (60.1%) Commercial and Industrial Loans  (14.8%) Consumer Loans (8.5%) Real Estate Loans (28%) Interbank Loans (Federal Funds) (4.6%)
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    Securities (24.1%) U. S. Government Securities State and Municipal Bonds
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    Cash Assets  (4.5%) Vault cash. Reserve deposits at the Federal  Reserve banks. Correspondent balances. Cash items in the process of collection.
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    Bank Assets Banks are barred by law from  owning stocks—too risky However, banks do buy stocks  for trusts they manage—not  shown among bank’s own  assets
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    Bank Liabilities Percentage of funds from  transactions  deposits  has reduced from 43% in  1970 to 10% in 2002 Used to be major source of funds Generally low interest (if any) paid on  demand deposits and increase in interest  paid on other types of assets has caused  this decline
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    Commercial Bank Liabilities  and Equity Capital Transactions deposits. (9.5%) Savings deposits and small- denomination time deposits. (41.3%) Deferred availability cash items. Large-denomination time deposits.  (15.6%) Purchased funds. Other borrowings.
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    Bank Liabilities Non-transaction deposits  represented 47%  of banks’ funds in 2002 Passbook savings deposits—traditional form of  savings Time deposits—certificates of deposit with  scheduled maturity date with penalty for early  withdrawal Money market deposit accounts—pay money  market rates and offer limited checking functions Negotiable CDs—can be sold prior to maturity
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    Bank Liabilities Miscellaneous Liabilities  have experienced a  significant increase during past 25 years Borrowing from Federal Reserve— discount borrowing Borrowing in the  federal funds market —unsecured loans 
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This note was uploaded on 09/07/2011 for the course ECON ECO 201 taught by Professor Unknown during the Spring '09 term at New York Institute of Technology-Westbury.

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ch12 - DepositoryFinancial Institutions Chapter12...

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