Balance Sheets of FIs

Balance Sheets of FIs - risk, particularly if operating on...

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Balance Sheets of FIs 1 Corporations finance real assets with financial assets (primary securities). FIs finance corporate primary securities with household secondary securities (primarily savings and deposits). The liabilities of a corporation are the assets of a FI. Assets Liabilities Assets Liabilities Real Assets Primary Securities Primary Securities Secondary Securities Corporation Financial Institution
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Balance Sheets of FIs 2 FI assets are primarily loans and investments. Assets have credit and liquidity risk. Assets are financed with liabilities with mismatched maturities (interest rate risk). Assets Liabilities and Equity Loans Deposits Other Other
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Balance Sheets of FIs 3 In FIN 4620, we will see how FIs manage a balance sheet where the left-hand side is high-risk and illiquid and the right-hand side is low-risk and liquid. FIs can diversify and manage away much of their portfolio
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Unformatted text preview: risk, particularly if operating on a national or global basis. Assets Liabilities Primary Securities Secondary Securities Financial Institution Other FI Economic Benefits 4 Transmission of Monetary Policy Acts as conduit of Feds monetary (credit) policies. Credit Allocation The government relies on FIs to support the economy by making loans. A Quote 5 An economy without a functioning banking system is like a runner without legs. FI Specialness 6 A breakdown of the system can destroy an economy. Firms lose access to credit and cannot function. Consumers lose their savings. The role that FIs play in the local, domestic, and world economies is so important that they are highly regulated. Different types of FIs are subject to different Regs. Regs can be imposed at the state or federal level....
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This note was uploaded on 01/26/2012 for the course FIN 4620 taught by Professor Patriciarobertson during the Spring '12 term at Kennesaw.

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Balance Sheets of FIs - risk, particularly if operating on...

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