DIs – Balance Sheet

DIs – Balance Sheet - However, slack demand...

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DIs – Balance Sheet Banks offer products on both sides of the balance sheet. Loans are assets. Deposits are liabilities. This unique combination creates risk. 1 Assets Liabilities and Equity Loans Deposits Other Other
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DIs – Balance Sheet 2 In the simplest form, DIs gather deposits and lend them to clients, profiting from the spread, or margin. The spread is the difference between the rate at which money is loaned versus the rate paid for the deposits. FIs buy and sell money…they are in the spread business. Assets Liabilities and Equity Loans Deposits Other Other
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Bank Performance 3 WSJ – 5/3/11 Over the past decade, bank spreads have compressed, causing them to seek other sources of profitability. Recently, with short-term rates near zero (lowest since the ’50’s), recent margins hit an 8- year high.
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Unformatted text preview: However, slack demand for loans is offsetting improved margins. Recent strong profits are primarily from the release of loan loss reserves, not top line growth. Bank ROA and ROE (from text) 4 Commercial Bank Performance 5 Overdraft Fees 6 Overdraft charges was a significant source of fee income, which is now regulated. Debit card interchange fees are also now capped. Fees for checking accounts might replace both of these sources of fees. WSJ 8/14/10 Types of DIs Commercial Banks Most diversified asset base and funding sources. Residential mortgages Commercial loans Consumer loans Government and corporate securities Savings Institutions Residential mortgages Credit Unions Consumer loans 7...
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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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DIs – Balance Sheet - However, slack demand...

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