BK9 - MANA130107 Bank Management 1 Lecture Nine Liability Management-Deposit(chap 12 Topics in Commercial Bank Management MANA130107 Bank

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Unformatted text preview: MANA130107 Bank Management 1 Lecture Nine Liability Management--Deposit (chap 12 ) Topics in Commercial Bank Management MANA130107 Bank Management 2 Liability Management--Deposit ¡ Topics covered in this lecture ¢ Types of Deposit ¢ Mix and Cost of Deposit ¢ Pooled Funds Pricing ¢ Marginal Cost Pricing ¢ Conditional Pricing ¢ Managing Customer Relationship MANA130107 Bank Management 3 Banks ’ Funding Sources ¡ Bank funding sources ¢ Deposit, Borrowings, Bond and Note, Equity funding ¢ Deposit is No.1 fund resources ¢ Concerns: Cost and Sufficiency ¢ Competitiveness: Pricing Scheme and Marketing ¡ Recent trends in Deposits ¢ Customers become more IR conscious ¢ Customers prefer shorter-term deposits ¢ Core deposits are viewed as increasingly valuable ¢ Hybrid CDs are issued to attract rate sensitive depositors MANA130107 Bank Management 4 Change in fund sources over time 1935 – 2004 0% 5% 10% 15% 20% 25% '04 '98 '92 '86 '80 '74 '68 '62 '56 '50 '44 '38 Borrowed Funds, Sub. Notes and Total Equity 50% 60% 70% 80% 90% 100% Total Deposits Borrowed Funds Total Deposits Subordinated Notes Total Equity Percent of total funding Percent of total funding MANA130107 Bank Management 5 Contribution of Funding Components 0% 25% 50% 75% T o ta l d e p o s its h e ld in d o m e s tic o f ic e s T ra n s a c tio n a c c o u n ts N o n tr a n s a c tio n a c c o u n ts M o n e y m a rk e t d e p o s it a c c o u n ts (M M D A s ) O th e r s a v in g s d e p o s its T im e d e p o s its o f le s s th a n $ 1 ,0 V o la tile lia b ilitie s T im e d e p o s its o f $ 1 ,0 o r m o r e D e p o s its h e ld in fo re ig n o f ic e s O th e r b o r ro w e d fu n d s S u b o r d in a te d d e b t E q u ity c a p ita l Percent of Total Funding (Total Assets) 12/31/1992 12/31/1996 12/31/2000 12/31/2004 IR sensitive short-term preference MANA130107 Bank Management 6 Types of Deposits ¡ Transaction Deposit ¢ Regular check account: making payments for purchases of goods and services ¢ Demand: honor immediately any withdrawals ¢ Most volatile and least predictable funding ¢ Either non-interest bearing or interest-bearing ¡ Non-Transaction Deposit ¢ Saving or Thrift account ¢ Money set aside for future expenditures ¢ Higher IR than check account ¢ Less costly to process and manage MANA130107 Bank Management 7 Transaction Deposit ¡ Non-interest Bearing Demand Deposit ¢ Not paying interest ¢ Services: payment, safekeeping, recordkeeping ¢ Glass-Steagall Act, 1933 “Pay Interest on immediately withdrawable deposits endanger bank safety”—little empirical support ¢ Mostly held by business ¡ Interest-Bearing Demand Deposit ¢ Negotiable Orders of Withdrawal (NOW) Accounts- New England,1970 hybrid checking-saving deposits- US, Depository Institutions Deregulation Act, 1980- Prior notice of withdraws with payment services- Individual and nonprofit institutions only MANA130107 Bank Management 8 Transaction Deposit ¡ Interest-Bearing Demand Deposits ¢...
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This note was uploaded on 10/17/2011 for the course FINANCE CFA 201 taught by Professor Leo during the Spring '09 term at Fudan University.

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BK9 - MANA130107 Bank Management 1 Lecture Nine Liability Management-Deposit(chap 12 Topics in Commercial Bank Management MANA130107 Bank

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