Lecture 8 Chpt 12 D2L 2011

Lecture 8 Chpt 12 D2L 2011 - Fin 320 Chapter 12: Depository...

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Fin 320 Chapter 12: Depository Institutions: Banks and Bank Management Lecture 8 1
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Depository Institutions: What is a bank? Where do banks get their funds and what do they do with them? What are the risks banks face? 2
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Financial Institutions Financial institutions are firms whose assets and liabilities are primarily financial instruments. 3
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Financial Institutions Depository Institutions: Financial institutions that accept deposits. Includes banks, savings and loans, savings banks, and credit unions. We’ll call all of these Banks Nondepository institutions: Financial institutions – insurance companies, pension funds, mutual funds and the like – do not accept deposits. 4
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Balance Sheet of Commercial Banks: Assets, Liabilities, and Capital The balance sheet identity: Bank Assets = Bank Liabilities + Bank Capital When one side changes, the other side must change as well. 5
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U.S. Banks 6
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Assets: Uses of Funds Cash (10.6%) Reserves = vault cash + deposits at the Fed Cash Items in process of collection Balances held at other banks In January 2010, banks held more than 10% of their assets in cash. Up to the financial crisis of 2007-2009, banks held about 3%. Banks want to minimize cash holdings because they earn less on cash. 7
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Assets: Uses of Funds Securities (19.9%) U.S. Government and agency = 12.1% of assets Other = 7.8% of assets These are very liquid. They are secondary reserves . Banks cannot hold stocks, so these are only bonds. About half of all securities are mortgage-backed. 8
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Loans (57.1%) Loans can be divided into five categories: Business loans called commercial and industrial (C&I) loans; Real estate loans, including both home and commercial mortgages and home equity loans; Consumer loans, like auto and credit card loans; Interbank loans; and Other types, including loans for the purchase of other securities. Primary differences among various depository
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This document was uploaded on 10/26/2011 for the course FIN 320 at DePaul.

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Lecture 8 Chpt 12 D2L 2011 - Fin 320 Chapter 12: Depository...

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