DEPOSITORY INSTITUTIONS

[ACTIVITIES AND CHARACTERISTICS]

Asset/Liability Problem
 Spread Income or Margin Income
 Types of Risk
o Credit Risk
o Regulatory Risk
o Interest Rate Risk
Liquidity Concerns
 Ways to obtain funds to accommodate withdrawals and loan demand:
o Attract additional deposits
o Use currently-owned securities as collateral for loans from other
institutions
o Raise short-term funds in the money market
o Sell currently-owned securities
Depository Institutions
 Commercial Banks
 Savings and Loan Associations
 Savings Banks

 Credit Unions
Bank Services
 Consumer Banking
o Installment loans, residential mortgage loans, Credit card loans,
brokerage services, Student loans, etc.
 Global Banking
o Corporate finance, institutional banking
o Commercial real estate finance, leasing, factoring
o Capital market and foreign exchange market products and
services
o Institutional banking- loans to financial & non financial
corporations
Sources of Bank Funds
 Deposits

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 o Demand Deposits
o Time Deposits
 Non-deposit Borrowing
o Fed Discount Window
o Federal Funds Market
 Other Non-deposit Borrowing
o Issuance of Debt Securities
 Retained Earnings and Sale of Equity Securities
Bank Income
 Bid-Ask Spread
 Capital gains on Securities and gains on foreign currency transactions
 Spread between interest income and cost of funds
Bank Regulation
 Interest Rate on Deposit Accounts
 Geographical Restrictions on Branch Banking
 Permissible Activities for Commercial Banks
 Capital Requirements for Commercial Banks
Regulation of Interest Rates
 Regulation Q
 Depository Institutions Deregulation and Monetary Control Act(1980)
 Garn-St. Germaine Act(1982)
Savings and Loan Associations
 Principal assets
o Mortgages
o Mortgage-banked securities
o Government Securities
 Principal sources of funds
o Passbook savings accounts
o Time deposits
 Regulation
Capital Requirements
 Based on Bank Regulation and Supervisory Practices
o Capital adequacy standards

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 o Risk- based capital guidelines
Factors in the S & L Crisis
 Borrowing short and lending long
 Interest rate ceilings on deposits
 Volatile interest rates
 Fraudulent management activities
 High-risk strategies
Savings Banks
 Mutually owned or stockholder owned
 Principal assets
o Residential mortgages
 Principal Source of funds
o Deposits
Credit Unions
 Owned by members
 Principal assets
o Small consumer loans
o Residential mortgages
o Securities
 Principal Source of funds
o Member deposits