Bank examinations intended to: prevent fraud, ensure compliance, determine proper management via CAMEL: Capital, Adequacy, Management, Earnings, and Liquidity. Deregulation of 1980s / DIDMCA ACT of 1980 (Depository Institutions Deregulation and Monetary Control Act): enabled Savings and Loans to make consumer loans and to invest in commercial paper and corporate bonds as long as total exposure to these assets was less than 20%. Mutual Savings were able to make commercial loans as long as these assets were less than 5%. Also provided that ALL DEPOSITORY Institutions could issue NOW (Negotiable Orders of Withdraw or checking accounts,) and ATS (Automatic Transfer of Savings Accounts –which allowed checking deposit funds in excess of a certain amount to be automatically transferred to a savings account and for a reverse flow to take place when a check is drawn on an account wit too low a balance. These actions allowed depository institutions to compete with money market mutual funds. Deregulation also phased out Regulation Q which set maximum interest rates that lenders could charge. Removed the usury ceiling. Despite Deregulation, failures of thrifts remained high and led to Depository Institutions Act of 1982 (MMDA for money market deposit accounts), and Super NOW accounts. Mortgage lending enhancements : FHA (Federal Housing Administration), VA (Veterans Administration), FNMA (Federal National Mortgage Association – formed in 1937 as a federal agency and converted to a private corporation in 1966), GNMA (Government National Mortgage Association – which provided subsidies and was formed in 1968), FHMLC (Federal Home Loan Mortgage formed in 1970) Commercial Bank Management : Oligopolistic : banks operate in markets where their strategies take into account tactics of rivals and believes that their average revenue (demand) curvers for loans are downward sloping. Multiproduct : Banks provide many various products Uncertainty of inputs and outputs : banks operate in markets where price of inputs (borrowed funds) and outputs (rates charged on business lonas) cannot be perfectly predicted. Volatility of assets and liabilities : volume of assets and liabilities are subject to variation in both the short and long run. Bank Holding Companies: Were formed to own or control one or more banks in the form of a corporation and which were formed to avoid the usual restrictions on business activities permitted by commercial banks such as charter restrictions and regulatory rules. Restrictions on Bank Loans and Investments : National Banks cannot lend more than 15% of their equity to one agent, can make only limited loans to directors and officers, no stock investments (other than for trust activities), affiliate loans are regulated, loans made to purchase stocks are subject to FED margin requirements. Bank Costs : Attracting Funds to Bank: Interest and promotional expenses, costs of borrowing funds such as interest of federal funds
Operations and Services: costs to provide deposit services, management of customer investments, management of the bank’s own investments and loans, other.
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