Tài liệu Thị trường tài chính và các định chế tài chính_ Chapter 17 doc

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Chapter 17
Commercial Bank 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

Commercial banks as financial
intermediaries

Bank market structure

Bank sources of funds

Uses of funds by banks

Off-balance sheet activities

International banking
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Commercial Banks as Financial
Intermediaries

Commercial banks serve all types of
surplus and deficit units

Offer deposit accounts with the size and
maturity characteristics desired by surplus
units


Repackage funds received from deposits to
provide loans of the size and maturity desired
by deficit units
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Bank Market Structure

Banks are continuing to consolidate:

Interstate regulations were changed in 1994 to allow
banks more freedom to acquire banks across state
lines

Competition among banks increased

Banks needed to become more efficient as a means of
survival

Acquisitions were a convenient method to grow quickly

The number of banks today is about one-half that
existed in 1985

The largest 100 banks now represent about 75 percent
of all bank assets
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Bank Market Structure (cont’d)

Bank participation in financial conglomerates


Some commercial banks have acquired other types of financial
service firms

Conglomerates are composed to various units offering
specialized services

Impact of the Financial Services Modernization Act

The Act gave banks and other financial service firms more
freedom to merge, without having to divest some of the financial
services that they acquired

The Act allowed financial institutions to offer a diversified set of
financial services
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Bank Market Structure (cont’d)

Benefits of diversified services to individuals and firms

Individuals and firms have various financial needs that they can
now satisfy with one conglomerate

Some financial conglomerates specialize in the services desired
by individuals or large firms

Benefits of diversified services to financial institutions

Financial institutions can reduce their reliance on the demand for
any single service they offer


Diversification may result in less risk for the institution

The units of a financial conglomerate may generate some new
business just because they offer convenience to clients who
already rely on its other services
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Bank Sources of Funds

A financial institution’s liabilities represent its sources of
funds

Transaction deposits

A demand deposit account (checking account) is offered to
customers who desire to write checks

A conventional account requires a small minimum balance and pays
no interest

A negotiable order of withdrawal (NOW) account provides
checking services as well as interest but requires a larger
minimum balance

Electronic transactions

About two-thirds of all employees in the U.S. have direct deposit
accounts

More than 60 percent of bank customers use ATMs


Debit cards and preauthorized debits can be used for recurring
monthly payments
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Bank Sources of Funds (cont’d)

Savings deposits

Until 1986, Regulation Q restricted the interest rate
banks could offer on passbook savings

Ceilings prevented commercial banks from competing for
funds during periods of higher interest rates

An automatic transfer service (ATS) account allows
customers to maintain an interest-bearing savings
account that automatically transfers funds to their
checking account when checks are written
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Bank Sources of Funds (cont’d)

Time deposits

Time deposits are deposits that cannot be withdrawn
until a specified maturity date

Retail certificates of deposit (CDs) require a
specified minimum amount of funds to be deposited for
a specified period of time

Annualized interest rates vary among banks and maturity

types

There is no organized secondary market

Depositors will normally forgo a portion of their interest as a
penalty for early withdrawal
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Bank Sources of Funds (cont’d)

Time deposits (cont’d)

Certificates of deposit (cont’d)

Bull-market CDs reward depositors if the market performs well

Bear-market CDs reward depositors if the market performs poorly

Callable CDs can be called by the financial institution early

Pay a slightly higher interest rates, which compensates depositors for
risk

Negotiable certificates of deposit (NCDs):

Are offered by some large banks to corporations

Typically have short-term maturities

Typically require a minimum deposit of $100,000


Do not have a secondary market
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Bank Sources of Funds (cont’d)

Money market deposit accounts (MMDAs):

Were created with the Garn-St Germain Act of 1982

Differ from conventional time deposits in that they do
not specify a maturity

Are more liquid than retail CDs

Normally pay a lower rate than retail CDs

Differ from NOW accounts in that they provide limited
check-writing ability
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Bank Sources of Funds (cont’d)

Federal funds purchased

Federal funds purchased represent a liability to the borrowing
banks and an asset to the lending bank that sells them

Loans in the federal funds market are typically for one to seven
days

The intent of federal funds transactions is to correct short-term
fund imbalances experienced by banks


The interest rate charged in the federal funds market is the
federal funds rate

Typically between 0.25 percent and 1.00 percent above the T-bill
rate

Banks that are short of required reserves on the average over a
settlement period must compensate with additional reserves
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Bank Sources of Funds (cont’d)

Borrowing from the Federal Reserve banks

The interest rate charged on loans from the Fed is the
discount rate

Loans from the discount window are commonly from
one day to a few weeks

The discount window is mainly used to resolve a
temporary shortage of funds

Banks commonly borrow in the federal funds market
instead of the discount window because the Fed may
disapprove of continuous borrowing by a bank
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Bank Sources of Funds (cont’d)

Repurchase agreements


A repurchase agreement (repo) represents the sale of
securities by one party to another with an agreement to
repurchase the securities at a specified date and price

Banks use repos as a source of funds when they need funds just
for a few days

The bank sells some government securities to a corporation and
buys those securities back later

Repos occur through a telecommunications network connecting
large banks, corporations, government securities dealers, and
federal funds brokers

Repo transactions are typically in blocks of $1 million

The repo yield is slightly less than the federal funds rate