tailieunhanh - Financial Markets and Institutions: Chapter 17

Chapter 17 Commercial Bank Operations: describe the market structure of commercial banks, describe the most common sources of funds for commercial banks, explain the most common uses of funds for commercial banks, describe typical off-balance sheet activities for commercial banks. | 1 1 Part 6 Commercial Banking 2 ■ describe the market structure of commercial banks ■ describe the most common sources of funds for commercial banks ■ explain the most common uses of funds for commercial banks ■ describe typical off-balance sheet activities for commercial banks 17 Commercial Bank Operations Chapter Objectives 3 3 Background on Commercial Banks Bank Market Structure Interstate banking regulations were changed in 1994 to allow banks more freedom to acquire other banks across state lines. The number of banks has declined over time, thereby increasing concentration in the banking industry. Many banks are owned by bank holding companies allowing more flexibility to borrow funds, issue stock, repurchase the company’s own stock, and acquire other firms. 4 Exhibit Consolidation among Commercial Banks over Time 5 Source: Federal Reserve. Bank Sources of Funds Deposit Accounts Transaction deposits Savings deposits Time deposits Money market deposit accounts Borrowed Funds Federal funds purchased (borrowed) Borrowing from the Federal Reserve banks Repurchase agreements Eurodollar borrowings Long-Term Sources of Funds Bonds issued by the bank Bank capital 6 Bank Sources of Funds Transaction Deposits A demand deposit account, or checking account, is offered to customers who desire to write checks. A conventional demand deposit account requires a small minimum balance and pays no interest. A negotiable order of withdrawal (NOW) account pays interest and provides checking services. Electronic Transactions - Some transactions originating from transaction accounts have become much more efficient as a result of electronic banking. (direct deposit accounts, computer banking, preauthorized debits) 7 Bank Sources of Funds Savings Deposits The traditional savings account is the passbook savings account, which does not permit check writing. Time Deposits Deposits that cannot be withdrawn until a specified maturity Certificates of Deposit (or retail CDs) require a . | 1 1 Part 6 Commercial Banking 2 ■ describe the market structure of commercial banks ■ describe the most common sources of funds for commercial banks ■ explain the most common uses of funds for commercial banks ■ describe typical off-balance sheet activities for commercial banks 17 Commercial Bank Operations Chapter Objectives 3 3 Background on Commercial Banks Bank Market Structure Interstate banking regulations were changed in 1994 to allow banks more freedom to acquire other banks across state lines. The number of banks has declined over time, thereby increasing concentration in the banking industry. Many banks are owned by bank holding companies allowing more flexibility to borrow funds, issue stock, repurchase the company’s own stock, and acquire other firms. 4 Exhibit Consolidation among Commercial Banks over Time 5 Source: Federal Reserve. Bank Sources of Funds Deposit Accounts Transaction deposits Savings deposits Time deposits Money market deposit accounts Borrowed Funds