Chapter9 - Management of Banking and Financial Institutions...

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Management of Banking and Financial Institutions Chapter 9
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Overview The Bank Balance Sheet Asset Management Liability Management Capital Adequacy Management Managing Interest Rate Risk Financial Innovations
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How do banks make money? Take in liabilities with certain characteristics Short term Low interest rate Liquid deposits Convert to loans with different characteristics Long term Higher Interest Rate Less liquid loans Total Assets = Total Liabilities + Bank Capital
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Liabilities Checkable deposits Nontransaction deposits CDs, savings accounts Borrowings Fed Reserve Bank to bank Parent Company Repurchase agreements (Repos) Eurodollars Bank Capital (Net worth) Stock
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Assets Cash items Reserves: Required and Excess Cash items in process of collection Deposits at other banks Securities (10% of revenue) Federal, state, and local Loans (over 50% of revenue) Illiquid, long term, so higher interest Other Assets (physical capital)
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Accounting scheme Role of reserves Reserve ratio Excess reserves Liquidity What to do when reserves get too low?
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This note was uploaded on 04/07/2008 for the course ECON 4130 taught by Professor Springer during the Spring '08 term at Rensselaer Polytechnic Institute.

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Chapter9 - Management of Banking and Financial Institutions...

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