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Deposit-Taking Institutions

Deposit-Taking Institutions. Week 2 – August 31, 2005. Types of Financial Institutions. Deposit-taking Commercial banks Thrifts Insurance type Insurance companies Pension funds Managed assets - mutual funds, trusts, etc. Securities firms and pool operators.

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Deposit-Taking Institutions

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  1. Deposit-Taking Institutions Week 2 – August 31, 2005

  2. Types of Financial Institutions • Deposit-taking • Commercial banks • Thrifts • Insurance type • Insurance companies • Pension funds • Managed assets - mutual funds, trusts, etc. • Securities firms and pool operators

  3. Classification of Deposit Firms • Deposit-taking • Commercial banks • Savings institutions or thrifts (savings and loans and savings banks) • Credit unions (also included among thrifts) • Some finance companies • Banks are largest • Assets differ between thrifts

  4. Deposit Institutions: 1970-2004 • Total Financial Assets (billions)1970 2004U.S. Chartered Banks $ 489.7 $ 6,398.1Foreign Bank Offices 9.0 569.7Savings Institutions 252.6 1,691.2Credit Unions 17.7 654.7 • Banks have maintained relative share at  69% of deposit-taking institution assets • Effects of thrift crisis and deregulation

  5. Commercial Banks • Bank charters are licenses to operate (take deposits) • National banks • State-chartered banks • Dual banking in the U.S. versus other countries • National versus domiciled nation treatment • Membership in the Federal Reserve system • Deposit insurance with Federal Deposit Insurance Corporation (FDIC)

  6. Banks and Branches 1997

  7. Banks and Branches 2003 Number of Operating Commercial Banks in the U.S. at Year-end 2003

  8. Other Deposit-Taking Institutions • Charters • Savings and loan • Mutual savings bank • Savings banks • Industrial loan or thrift and loan • Credit unions • State charters versus federal charters • Office of Thrift Supervision (OTS) and history • National Credit Union Administration (NCUA)

  9. Thrift Activities • Savings and loans, mutual savings associations and savings banks • Concentrate in small savers’ deposits • Concentrated until 1980 in home loans • Tax advantaged in terms of home mortgages • Credit unions • “Promote thrift and affordable source of credit” • Charters and deposit insurance issues • Tax advantages

  10. Savings and Loans

  11. The Credit Union Movement

  12. Credit Unions

  13. Bank and Thrift Balance Sheets • Short-term funds • Transactions accounts • Small savings accounts • Time and certificates of deposit • Demand for deposit assets • Households • Corporations • Assets - Securities and Loans

  14. Deposit Firms’ Income • Revenue: Interest income • Loans and leases • InvestmentsFee income • Deposit charges and loan fees • Other feesCredit Losses • Expenses: Interest expense Non-interest expense • Labor and related expenses • Communication, fees

  15. Bank Income Statement (WFC)

  16. Bank Balance Sheet (WFC)

  17. Bank Ratio Analysis (WFC)

  18. Bank Affiliates • Bank holding companies • one-bank holding companies • multiple-bank holding companies • financial holding companies (new with Gramm-Leach-Bliley Act of 1999) • Separation of banking and commerce • Servicecorporations as subsidiaries of banks • Section 24 and Edge Act subsidiaries of banks

  19. Thrift Income Statement (WM)

  20. Thrift Balance Sheet (WM)

  21. Thrift Ratio Analysis (WM)

  22. Largest Banks and BHCs The Top Banks and Bank Holding Companies in the United States Measured by Asset Size (Ranked as of 12/31/03)

  23. Holding Companies pre-GLB • Bank holding companies • Banks “take deposits and make loans” • Allowable activities closely related to banking • Finance companies, mortgage and leasing companies • Discount brokerage, etc. • Non-bank holding companies • Thrifts • Insurance companies • Securities firms

  24. Banks with Glass-Steagall Bank Holding Company Commercial Bank Finance Company Discount Broker Securities Subsidiary (Section 24)

  25. Financial Holding Company Financial Holding Company Commercial Bank Investment Bank Insurance Company Thrift Institution Asset Management Company

  26. Reserves and Credit Creation

  27. Reserves and Credit Destruction

  28. Next class: September 14 • Read Chapter 16 of Money and Capital Markets • Bring a Wall Street Journal to class every Wednesday

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