* Federal Reserve Act (1913):
- Created the Federal Reserve System
* McFadden Act (1927):
- Effectively prohibited banks from branching across state lines
- Put national and state banks on equal footing regarding branching
* Glass-Steagall Act (1953):
Factors determining bank development
bank development = f(+location, +population, - competitors, +income, +number of businesses.)
Could potentially write a paper on whether or not one of those ^ factors is associated with bank failure
A) Concentration of Assets:
- Commercial banks are dominant supply of credit and they hold the largest percentage of the
- Small financial institutions, though numerous, holds less than 1% of the total assets.
Assets Held by FDIC-Insured Comm
The Management of Capital
Basel I and Basel II
What is capital? Funds contributed by the owners of a financial institution.
Purpose? Raising and retaining sufficient capital to protect the interests of customers, employees,
owners, and the general public
Functions of Financial Investment: Provides 1) Income, 2) Liquidity, 3) Diversification, and 4) a shelter for
at least a portion of earnings from taxation.
* Investments also tend to stabilize earnings, providing
supplemental income when other
1. What is a bank from a regulation point?
The Legal Basis for Banking
a. A bank is any business offering deposits subject to withdrawal on demand and making
loans of a commercial or business nature
b. Congress then defined a bank as any institu
What are the principal sources of liquidity demand for a financial firm?
The demand for liquidity arises from 3 sources 1) from customers withdrawing money from their
deposit accounts and 2) from credit requests from customers the institution wishes to ke
Duration a time-weighted measure of maturity that considers the timing of all cash inflows from
earning assets and all cash outflows associated with liabilities. It measures the average maturity of a
promised stream of future cash payments. It is a direct
Why a Bank Needs Capital
A bank is required to have capital on hand in order to limit risk and decrease the amount
of potential, unexpected losses that may occur. Banks do not operate like normal companies in
a sense that banks