FIN 408- Exam #1 Study Guide

FIN 408- Exam #1 Study Guide - FIN 408 Exam #1 Study Guide...

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FIN 408 Exam #1 Study Guide Chapter 1 Banks o Offer checking accounts and commercial loans o Intermediate between surplus-spending individuals or institutions and deficit-spending individuals or institutions o Lately have been, Increasing branch banking activity Forming more holding companies by buying smaller banks Merging with the largest banks in the industry Bank services have been increasing Competition is increasing o Convergence= financial service firms expanding into other product lines o Payment Role= Banks helping their customers with a purchase o Policy Role= o Guarantor Role= o Intermediation Role= o Comptroller of the Currency= Has supervison over all National chartered banks(commercial banks) o Thrift Institutions Savings and Loan Associations (Office of Thrift Supervision at the Federal Level) Mutual Savings Banks (located mainly in New England states) Credit Unions (National Credit Union Administration at the Federal Level) o Non-bank Financial Firms Insurance Companies (regulated by the State) Finance Companies (Regulated by the State) Mutual Funds (regulated by the SEC) Hedge Funds (not heavily regulated) Security Brokers and Deals (Regulated by SEC) Investment Banks (regulated by SEC) Chapter 2 Banks are regulated because: o Protection of the Safety of the Public’s Savings o Control of the Supply of Money and Credit (M 1 = C P + DD or M 2 = C P + DD + TD) o Ensure Equal Opportunity and Fairness in Access to Credit (Social Goals too) o Power to create money o REGULATION Z- Truth-in-lending. Requires disclosure as to why
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someone was denied credit Dual Banking System= An institutional arrangement in which federal and state authorities both have significant bank regulatory power. (Commercial Banks, Savings and Loans, Credit Unions all at both Federal and State level) Reasons for Regulation o Regulations can increase customer confidence o Regulation shelters a firm from changes in demand and cost, lowering its risk o Firms seek regulation because it lessens competition (tough to get in) Getting Around Regulation (Regulatory Dialectic Process) o Thesis- Regulation o Antithesis- Innovation o Synthesis- re-regulation Ex) Banking Holding Company Example Regulation (Thesis)= You can branch only into a touching county Financial Innovation (Anti-Thesis)= Bank holding company. Bank in Cleveland bought out a savings and loan, turned it into a holding company which provided them a way to get around the branch touching restrictions Re-regulations (Synthesis)=You can branch state wide. Ohio has been one since 1988. Ex) Zero-Balance Account Example Regulation (Thesis)= you cannot pay interest on demand deposits Financial Innovation (anti-thesis). Enter the zero balance account. Ex) open checking account #3206A, Savings account is #3206B
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FIN 408- Exam #1 Study Guide - FIN 408 Exam #1 Study Guide...

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