1 / 18

Banking Basics

Banking Basics. Banking and the Financial Services Industry. What is a bank?. What is a bank? Depository institution = engages in the traditional banking activities of accepting deposits and making loans Types of depository institutions Commercial Bank Savings Institution Credit Union

tambre
Télécharger la présentation

Banking Basics

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Banking Basics Banking and the Financial Services Industry

  2. What is a bank? • What is a bank? • Depository institution = engages in the traditional banking activities of accepting deposits and making loans • Types of depository institutions • Commercial Bank • Savings Institution • Credit Union • Investment bank = assists in the buying and selling of stocks and bonds

  3. Types of Depository Institutions • Commercial Bank • Purpose - maximize shareholder (stock owner) wealth by accepting deposits and investing these funds into loans • Services - historically • Accept a variety of deposits (savings, demand) • Short-term business loans • Short-term business lines of credit • Short-term consumer loans • Mortgages • Examples • Citibank (NV – Federal) • SunTrust Bank (GA) • Regions Bank (AL)

  4. Types of Depository Institutions • Savings Bank • AKA – savings and loan association, mutual savings bank, thrift • Purpose - maximize shareholder (stock owner or mutual owner) wealth by accepting deposits and investing these funds into loans • Services - historically • Accept savings (time) deposits • Real estate loans – primarily residential • Examples • ING Bank (DE – Federal) • Apple Bank for Savings (NY)

  5. Types of Depository Institutions • Credit Union • Purpose – encourage savings and provide loans within a community at a low cost to their members • Members – have a “common bond”; deposit money • Do not pay state or federal income taxes • Services – historically • Accept savings (time) deposits • Loans to members • Examples • Navy Federal Credit Union (VA - Federal) • Suncoast Schools (FL) • Boeing Employees (WA)

  6. Depository Institution Services - Today • Accept demand deposits – checking account • Accept savings (time) deposits – saving account, money market account, certificates of deposit (CD) • Variety of short-term loans to individuals • Variety of short-term loans to businesses • Real estate loans • Credit cards

  7. Depository Institution Regulation • Regulators • Office of the Comptroller of the Currency (OCC) • Commercial bank with national charter • Office of Thrift Supervision (OTS) • Savings bank with federal charter • National Credit Union Administration (NCUA) • Credit Union with federal charter • State Depository Supervising Authorities • Commercial bank, savings bank, credit union with state charter • Federal Deposit Insurance Corporation (FDIC) • Commercial bank, savings bank with FDIC insured deposits • National Credit Union Share Insurance Fund (NCUSIF) • Credit union with NCUSIF insured deposits • Federal Reserve System (Fed) • All

  8. Why are Depository Institutions Regulated? • Promote a safe, sound, stable system • Provide an efficient and competitive system • Provide monetary stability • Maintain the integrity of the nation’s payments system • Protect consumers from abuses by credit-granting institutions

  9. Depository Institution Pros & Cons • What are the advantages of being a depository institution? • Deposits may be FDIC/NCUSIF insured • Have access to relatively inexpensive funds • Deposits are stable even during difficult times • What are the disadvantages of being a depository institution? • Interest rate paid to deposit holders is regulated • Interest rate charged on loans is regulated • Products and services offered are regulated • Reserve amounts are regulated • Are periodically examined by the regulator(s) • Hard to compete with non-depository institutions offering similar products

  10. Trends in Regulation • Prior to 1970 • Limit geographic expansion • McFadden Act of 1927 • Limit product expansion • Glass-Stegall Act of 1933 • Restrict interest rates paid on deposits • Restrict interest rates charged for loans • Truth in Lending Act of 1968 • Since 1970 • Expand geographic market • Riegle-Neal Interstate Banking & Branching Efficiency Act of 1994 • Expand products offered • Gramm-Leach-Bliley Act of 1999 • Increase competition • Today • Discussing regulation modification Period of Regulation Period of Deregulation

  11. What is a holding company? • What is a holding company? • Holding company = engages in a wide range of financial activities not permitted in a depository institution • Today the majority of depository institutions are part of a holding company

  12. Financial Holding Company Structure

  13. Bank Lines of Business • Accept deposits & make loans • Underwrite insurance • Underwrite securities • Manage trusts • Real estate • Advise/consult

  14. Bank Performance • What is a high performance bank? • Provides an exceptional return to shareholders • Maintains an acceptable level of risk

  15. Measuring Bank Performance • What are financial statements? • Balance Sheet = snap shot of a particular day or point in time • Income Statement = covers a period of time • Bank income is categorized as interest income or noninterest income. • In 1980, 80% of bank income was from interest. In 2008, only 58% of bank income was from interest. Assets = Liabilities + Owner’s Equity Income – Expenses = Net Income/Loss

  16. Measuring Bank Performance • What are performance ratios? • Enables the evaluation of bank profits relative to risks taken. • Return on Equity • Return on Assets • Equity Multiplier • Expense Ratio • Tax Ratio • Asset Utilization • Financial statements and the Uniform Bank Performance Report (UBPR) must be compiled quarterly.

  17. Bank Risk • Credit Risk • Risk that a borrower will not pay principal and interest • Lending in a narrow geographic area, in a certain industry, or to a country affect credit risk • Liquidity Risk • Risk that the bank will not have enough cash available for people to withdraw • Market Risk • Risk that stockholder’s earnings will go down because of market rates or prices • Changes in interest rates and foreign exchange rates affect market risk

  18. Bank Risk • Operational Risk • Risk that operating expenses will go up • Poor management, natural disaster, and theft affect operational risk • Legal Risk • Risk that unenforceable contracts, lawsuits, or adverse judgments have a negative impact • Failing to comply with regulations affects legal risk • Reputation Risk • Risk of negative publicity

More Related