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Presentation2 - increased significantly – Banks sell...

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1 Bank of America Handout 2010 Annual Report (pages 142 and 143)
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Commercial Bank Liabilities Banks fund lending and investing activities with equity (from shareholders) and debt (deposits and borrowed funds). 2 BBVA Banking Watch
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Commercial Bank Liabilities Deposits types include: Transaction Accounts (checkable) Demand Deposits – non-interest bearing by regulation NOW (Negotiable Order of Withdrawal) – interest bearing 3 Non-Trans action Accounts (non- checkable) Money Market, Savings and CDs (< $100,000) Large Time Deposits (> $100,000) WSJ – 7/26/11
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Changing Liability Structure Depository institutions have traditionally funded asset growth with core deposits; core deposits have been attriting for years in favor or higher yielding opportunities. Due to the financial crisis, there has been a flight to quality and bank deposits are at historical highs. 4 WSJ – 5/9/11
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Changing Liability Structure 5 To replace attriting deposits, brokered deposits have
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Unformatted text preview: increased significantly. – Banks sell high-yielding, large-denomination CDs to marketers, who in turn sell them to clients in smaller pieces. – Considered ‘hot’ or ‘non-sticky’ money. Brokered Deposits Article Brokered Deposits 6 FDIC Web Site • Brokered deposits has been directly associated with bank failures. Commercial Bank Performance 7 Historically, banks have struggled to raise enough deposits to fund loans. The opposite is true today; customers are maintaining record levels of deposits ($8.1 T). Non-Interest Bearing Deposits • Historical levels of bank deposits are non-interest bearing corporate deposits . • Firms are hesitant to invest in this economy, and have few short-term investment options. • Plus, through 2012, the funds are FDIC insured without limits. • The deposits are not ‘sticky,’ so banks are not lending and need to plan for a sudden liquidity drain. 8 WSJ – 12/5/11...
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