Demand deposits are regular checking accounts against which a customer can

Demand deposits are regular checking accounts against

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Demand deposits are regular checking accounts against which a customer can write checks or make any number of personal withdrawals. Regular checking accounts do not bear interest under current U.S. law and regulation. Savings deposits bear interest (normally, they carry the lowest rate paid on bank deposits) but may be withdrawn at will (though a bank usually will reserve the right to require advance notice of a planned withdrawal).
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Time deposits carry a fixed maturity and the bank may impose a penalty if the customer withdraws funds before the maturity date is reached. The interest rate posted on time deposits is negotiated between the bank and its deposit customer and may be either fixed or floating. A NOW account combines features of a savings account and a checking account, while a money market deposit account encompasses transactional powers similar to a regular checking account (though usually with limitations on the number of checks or drafts that may be written against the account) but also resembles a time deposit with an interest rate fixed for a brief period (such as weekly) but then becomes changeable over longer periods to reflect current market conditions. 5-5. What are primary reserves, and secondary reserves and what are they supposed to do? Primary reserves consist of cash, including a bank's vault cash and checkable deposits held with other banks or any other funds such as reserves with the Federal Reserve that are accessible immediately to meet demands for liquidity made against the bank. Secondary reserves consist of assets that pay some interest (though usually pay returns that are much lower than earned on other assets, such as loans) but their principal feature is ready marketability. Most Secondary reserves are marketable securities such as short term government securities and private securities such as commercial paper. Both primary and secondary reserves are held to keep the bank in readiness to meet demands for cash (liquidity) from whatever source those demands may arise. 5-7. What are off-balance-sheet items and why are they important to some financial firms? Off-balance-sheet items are usually transactions that generate fee income for a bank (such as standby credit guarantees) or help hedge against risk (such as financial futures contracts). They are important as a supplement to income from loans and to help a bank reduce its exposure to interest-rate and other types of risk. 5-8.Why are bank accounting practices under attack right now? In what ways could financial institutions improve their accounting methods? The traditional practice of banks has been to record the value of assets and liabilities at their value on the day the accounts were originally created and not change those values over the life of the account. The SEC and FASB started questioning this practice in the 1980’s because they were concerned that investors in bank securities would be misled about the true value of the bank. Using this historical value accounting method may in fact conceal a bank that insolvent in
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  • Fall '16
  • Thu Trang
  • Debt, Financial services, Mortgage loan, Deposit account

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