COMMERCIAL BANKS

Definitons

The most important financial

Functions

Insurance function

Brokerage function

The guarantor function

Thrift or saving function

Credit function

Payments funtion

Cash management function

Bank sources of funds

Investment banking

Deposit accounts

Transaction deposits

Demand depodit account or Checking account

Negotiable order of withdrawal

Saving deposits

Passbook savings account

Time deposits (can't be withdrawn until a specified maturity date)

Retail CD

Negotiable CD

MMDAs

Not maturity date, more liquid, lower interest rate than retail

provide limited check-writing ability

Borrowed funds

Federal funds purchased (or borrowed)

accomodate the short-term liquidity need of financial istitutions

loans: 1 to 7 days, can bê rolled over.

Interest rate usually 0,25% to 1% higher than the yield on a Treasury security.

Borrowing from the Federal reserve Banks

Short-term (1 day to 1 few weeks), discount loans

Prime credit lending rate

Fed's approval

Repo

Sale of security

The securities serve as collateral in the repo transaction

Eurodollar Borrowings

Long-term sources of funds

Bonds issued by the bank

Fixed assets are usually financed as athe issuance of bonds

Bank Capital

Represent funds acquired by the issuance of stock or the retention of earnings

Has no obligation to pay out funds in the future

Distribution of Bank Sources of Funds

Ues of Funds by Banks

Cash

Bank loans

Investment in securities

Federal funds sold

Repurchase agreements

Euro dollar loán

Fixed assets

Loan Participations

Loans supporting Leveraged Buyouts

Types of business loans

Types of Consumer Loans

Real estate loans

Treasury securities

Corporate and Municipal Bonds

Mortgage-backed securities

Off-balance sheet activities

Forward contracts on currencies

Interest rate swap contracts

Standby letters of credit

Credit default swap contracts

Loan commitments