Ch 2 2012 - 1 Chapter 2 The Financial Services Industry:...

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Chapter 2 The Financial Services Industry: Depository Institutions 1
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Overview of Depository Institutions In this segment, we begin our focus on depository FIs (commercial banks, thrift institutions, & credit unions): Size, structure, and composition. Balance sheets and off-balance sheet activities, and recent trends. Regulation of depository institutions. Depository institutions’ performance. 2
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Products of U.S. FIs Comparing the products of FIs in 1950 to products of FIs in 2010: Much greater distinction between types of FIs in terms of products in 1950 than in 2010. Blurring of product lines and services over time. Wider array of services offered by all FI types. Depositories can now provide all major financial services under the FSMA (Financial Services Modernization Act) of 1999 aka Gramm Leach Bliley Act. Refer to Tables 2-1A and 2-1B in the text showing depository institutions can underwrite equity, debt, and insurance. Must be done through financial services holding companies. 3
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Outputs of depository FIs Products and services 1950: Primarily Loans, Deposits, Payment services, Savings products, Fiduciary services. By 2010, products and services further expanded to include: Off-Balance Sheet activities: Financial guarantees - promises to pay under certain conditions (e.g., loan commitments and standby letters of credit). Derivatives: instruments in which value depends on market prices. Underwriting of debt and equity, insurance, and risk management products. 4
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Size of Depository FIs Consolidation has created some very large depository FIs. Combined effects of deregulation (intrastate and interstate banking and branching and the FSMA), technological developments (internet, online banking, and ATMs). 5
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Largest US Depository Institutions (BHCs) Bank of America Corp. $ 2,264 2,247 Citigroup 1,957 1,260 Goldman Sachs Group 937 Morgan Stanley 831 MetLife 771 Taunus Corp. 412 HSBC North America Holdings 366 US BanCorp 321 Total Assets ($Billions) – Sep. 11 Institutions 6 http://www.ffiec.gov/nicpubweb/nicweb/Top50form.aspx
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Comments on Largest US Depository Institutions (BHCs) 7 http://www.ffiec.gov/nicpubweb/nicweb/Top50form.aspx These are BHCs, which include noncommercial bank assets in financial services holding companies. ells Fargo moved from 5 th to 4 th after buying Wachovia in late 2008 (used to be 4th). Some of the top 10 are investment banks (Goldman Sachs Group, Morgan Stanley) and insurance companies that own banks (MetLife). During the crisis, many became financial services holding companies in order to gain access to steady sources of
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Depository Institutions Commercial Banks Largest depository institutions are commercial banks. Banks gain their size through M&As. This has occurred primarily
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This note was uploaded on 02/17/2012 for the course FINA 465 taught by Professor Berger during the Spring '11 term at South Carolina.

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Ch 2 2012 - 1 Chapter 2 The Financial Services Industry:...

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