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Time deposits (can't be withdrawn until a specified maturity date)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