Class%20#6%20461%20NDFI%20IB%20Fin%20Co0

Class%20#6%20461%20NDFI%20IB%20Fin%20Co0 - Non Deposit...

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Non Deposit Financial Intermediaries Investment banks Finance companies
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2 Current Events Presentations TODAY: Kati Ko and Ksenija Starovoita TUESDAY: Meiling Liu Assignment: Text, Chapters 1, 2, 21 and Appendices 2B and 7A (pp. 1-2)
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3 Class Outline 1. Investment banks and securities firms Securities firm and investment banking activities 1999 Gramm-Leach-Bliley Act; IB evolution Citigroup as an experiment 1. Finance companies 2. NDFIs vs. DFIs and the future
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4 1. Investment banks and securities firms Some investment banks (IB) still exist as separate companies, but many have disappeared or evolved ; about a dozen boutique IB firms remain. We still have brokerage (securities) firms. Some IBs failed (Lehman Brothers) Some IBs were acquired (Bear Stearns, Merrill Lynch) Some IBs became bank holding companies (Goldman Sachs, Morgan Stanley)
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5 Securities (brokerage) firms Engage in brokerage activities (stocks and bonds) Examples are UBS Securities, Edward Jones, Raymond James; some are subsidiaries of bigger financial firms (FHCs) Compete with cheaper online brokers today SIPC —Securities Investor Protection Corporation —protects investors against losses of up to $500,000 caused by the failure of a securities firm . Member firms pay premiums to SIPC; does not insure against declines in prices of securities
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6 SIPC Member firms (5,200) paid a flat fee of $150 per firm from 1995 to 2008 to keep the fund above its target minimum of $1 billion . Payouts for some investors who suffered losses with Bernie Madoff’s firm is bringing the fund from $1.7 down to $1.0 billion or lower. SIPC is proposing a fee of 0.25% of net operating revenue . Many firms are complaining about the assessment.
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7 Investment banking Investment banking functions continue to be performed, but there are no large, stand-alone investment banks remaining in business. These IB functions include: Underwriting securities issues Trading activities for own account Dealer activities Asset management for clients Syndicated lending Brokerage activities
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8 IB and CB connection— Glass- Steagall Investment banking underwriting activities were required to be legally separated from commercial banking activities by the Glass- Steagall Act of 1933. In 1933, many commercial banks failed; some thought the riskier investment banking activities that some of these firms performed were contributing to the commercial bank failures GS Act required separation of the two—especially for underwriting private securities; cannot perform both sets of activities in one company This separation was recently undone
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This note was uploaded on 10/28/2011 for the course FIN 461 taught by Professor Morgan during the Fall '11 term at University of Illinois at Urbana–Champaign.

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Class%20#6%20461%20NDFI%20IB%20Fin%20Co0 - Non Deposit...

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