Tài liệu Thị trường tài chính và các định chế tài chính_ Chapter 21 pdf

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Chapter 21
Thrift Operations
Financial Markets and Institutions, 7e, Jeff Madura
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
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Chapter Outline

Background on savings institutions

Sources and uses of funds

Exposure to risk

Management of interest rate risk

Valuation of a savings institution

Interaction with other financial institutions
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Chapter Outline (cont’d)

Participation in financial markets

Performance of savings institutions

Savings institution crisis

Background on credit unions


Sources and uses of credit union funds

Credit union exposure to risk

Regulation of credit unions
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Background on Savings Institutions

Savings institutions include savings banks and
S&Ls

S&Ls are the most dominant type

Savings institutions are mainly concentrated in the
Northeast

The insuring agency for S&Ls is the Savings
Association Insurance Fund (SAIF)

The insuring agency for savings banks is the Bank
Insurance Fund (BIF)

Both agencies are administered by the FDIC

Savings banks and S&Ls are very similar in their
sources and uses of funds
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Background on Savings Institutions
(cont’d)
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Background on Savings Institutions
(cont’d)

Ownership

Most SIs are mutual (owned by depositors)

Many SIs have shifted their ownership structure from
depositors to shareholders through mutual-to-stock-
conversions

Allow SIs to obtain additional capital by issuing stock

Provide owners with greater potential to benefit from
performance

Make SIs more susceptible to hostile takeovers
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Background on Savings Institutions
(cont’d)

Ownership (cont’d)

In an acquisition, both SIs have to be stock-owned

Merger-conversion

The number of SIs today is about one-half of the
number in 1994


The total assets of stock SIs has increased by more
than 60 percent since 1994

The total assets of mutual SIs has remained steady
since 1994
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Background on Savings Institutions
(cont’d)

Regulation of savings institutions

Regulated at both the state and federal level

Federally chartered SIs are regulated by the Office of Thrift
Supervision (OTS)

State-chartered SIs are regulated by the state that has
chartered them

Regulatory assessment of SIs

Regulators conduct periodic onsite examinations of capital and risk

Monitoring is conducted using the CAMELS rating

Deregulation of services

Recently, SIs have been granted more flexibility to diversify
products
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Sources of Funds

Deposits

Most funds come from savings and time deposits such
as passbook savings, CDs, and MMDAs

Since 1981, SIs are allowed to offer NOW accounts as
a result of DIDMCA

Since 1982, SIs are allowed to offer MMDAs as a
result of the Garn-St Germain Act

Since 1978, SIs are allowed to offer retail CDs with
rates tied to Treasury bills
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Sources of Funds (cont’d)

Borrowed funds

SIs can borrow from other depository institutions in the federal
funds market

SIs can borrow at the Fed’s discount window

SIs can borrow through repos

Capital

The capital (net worth) of SIs is composed of retained earnings

and funds obtained from issuing stock

SIs are required to maintain a minimum level of capital
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Uses of Funds

Cash

SIs maintain cash to satisfy reserve requirements and
accommodate withdrawal requests

Mortgages:

Are the primary asset of SIs

Typically have long-term maturities and can be
prepaid by borrowers

Are mostly for homes or multifamily dwellings

Are subject to interest rate risk and default risk
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Uses of Funds (cont’d)

Mortgage-backed securities

SIs issue securities backed by mortgages

Cash flows to holders of these securities may not be
steady because of prepayment


Other securities

All SIs invest insecurities such as Treasury bonds and
corporate bonds

Provide liquidity

Some thrifts invested in junk bonds prior to 1989
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Uses of Funds (cont’d)

Consumer and commercial loans

Federally chartered SIs are allowed to invest up to 30 percent of
their assets in nonmortgage loans and securities

10 percent can be used to provide non-real estate commercial
loans

Maturities typically range from one to four years

Substituting loans for mortgages reduces interest rate risk but
increases credit risk

Other uses of funds

Repos

Lending in the federal funds market

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Uses of Funds (cont’d)
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Exposure to Risk

Liquidity risk

SIs commonly use short-term liabilities to finance long-term
assets

If new deposits are not sufficient to cover withdrawal requests,
SIs can experience liquidity problems

SIs can obtain temporary funds through repurchase agreements
or in the federal funds market

Credit risk

Conventional mortgages are the primary source of credit risk

SIs often carry the risk rather than paying for insurance

Many SIs were adversely affected by the weak economy in
2001–2002
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Exposure to Risk (cont’d)

Interest rate risk

Many SIs were hurt by rising interest rates in the

1980s because of their heavy concentration on fixed-
rate mortgages

Many SIs benefited from their exposure to interest rate
risk in the 2001–2002 period when interest rates
declined
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Exposure to Risk (cont’d)

Interest rate risk (cont’d)

Measurement of interest rate risk

SIs commonly measure the gap between rate-sensitive
assets and liabilities to determine interest rate risk exposure

Gap measurement is dependent on the criteria used to
classify an asset or liability as rate sensitive

Some SIs measure the duration of assets and liabilities to
determine the imbalance in sensitivity of interest revenue
versus expenses
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Management of Interest Rate Risk

Adjustable-rate mortgages (ARMs)

The interest rate on ARMs is tied to market-
determined rates and are periodically adjusted


ARMs enable an SI to maintain a more stable spread
between interest revenue and interest expenses

ARMs reduce the adverse impact of rising interest
rates and the favorable impact of declining interest
rates