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Commercial Bank Operations - Coggle Diagram
Commercial Bank Operations
Bank Market Structure
1994 Interstate Banking Changes
: Enabled cross-state bank acquisitions.
Industry Consolidation:
Fewer banks now; more industry concentration.
Bank Holding Companies:
Flexibility in borrowing, stock issuance, and acquisitions.
Source of Funds
Deposit Accounts:
-Transaction deposits (demand deposits, NOW accounts)
-Savings deposits
-Time deposits (e.g. CDs, negotiable CDs)
Money market deposit accounts
Borrowed Funds:
-Federal funds
-Federal Reserve loans (discount window, primary credit rate)
-Repurchase agreements
-Eurodollar borrowings
Long-Term Sources:
-Bonds
-Bank capital (stock issuance, retained earnings, risk based capital requirements post-1988)
Uses of Funds
-
Cash
: For reserve requirements and liquidity
Loans:
-Business loans: Working capital, term loans, lines of credit, LBOs, collateralized loans
-Consumer loans: Installments, credit cards
-Real estate loans: Residential and commercial
Investment in Securities:
-Treasury, agency, corporate, and municipal bonds; mortgage-backed securities
Short-term Landing:
Federal funds, repurchase agreements, Eurodollar loans
Fixed Assets:
Land, buildings, equipment
Proprietary Trading:
Investments for the bank's own account.
Off balance Sheet Activities
-Loan Commitments:
Agreements to lend on request
-Standby Letters of Credit:
Support customer obligations
-Financial instruments:
-Forward contracts (currencies)
-Interest rate swaps
-Credit default swaps
International Banking
Expansion:
Branches and subsidiaries to support U.S. firms
-Impact of the Euro:
Simplifies transactions, reduces exchange risk
-Risks:
Exposure to economic instability in countries like Greece and Spain