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massign9 - Money and Banking N Sheflin ASSIGNMENT 9 NOTES...

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Money and Banking N. Sheflin ASSIGNMENT 9 NOTES : Banking basics, along with some good stories. Also, Investment Game – Round 3 Mutual Funds. READING Croushore 8 And from Wikipedia: http://en.wikipedia.org/wiki/Banking_in_the_United_States and http://en.wikipedia.org/wiki/Bank Look at: http://en.wikipedia.org/wiki/Off-balance-sheet and Take a peek at http://www.fdic.gov/regulations/safety/manual/section3-8.html KEY POINTS Banks and Asymmetric Information-moral hazard and adverse selection Banking crises o S&L Crisis o 1990’s Credit crunch o Financial Crisis 2008- Commercial Bank Balance Sheet o Sources and uses of funds o Off balance sheet items Bank production process o Asset transformation o Provision of services o ROA and ROE and A/E RETURN ON EQUITY (MEASURE OF BANK ‘OWNERS’ PROFITABILITY) = RETURN ON ASSETS (MEASURE OF HOW EFFICIENTLY BANK USES ITS ASSETS) x ASSETS/EQUITY (LEVERAGE OR EQUITY MULTIPLIER) PNET INCOME(NI)/EQUITY = NI/ASSETS X ASSETS/EQUITY Larger A/E, greater ROE cet. par.
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