Bank Management Exam

Accepts Deposits and creates Loans. An entity is a bank if they want the protecting provided by FDIC

Glass Stegal ActBank Holding McFadden

Real Estate: 33.7%Fed Funds, Repurchase Agree.& Investment Securities 17%C&I loans: 11%Government Securities: 10%Loan loss other asstes 8.5%Individual loans: 8.4%All other Loans: 5.4% Cash: 4.4%

Other non Transaction accounts: 49.7%Borrowings: 20%Equity: 10%Large Time deposits: 9%Transactions accountsOther liaibilities: 3.1%

New products and a wave of mergers have expanded the services and products offered

To provide intermediatry services, Bring deficit spending and surplus spending units together

Because of market imperfections which impose cost DSU and SSU. Intermediatries can profit by reducing thease costs.

Acting as agent in monitoring risks Providing diversication Providing liquidity

Savings associationscredit unions money market mutal funds hedge fundsSecurities brokersInvestment BanksFinance companies/ holding ompaniesLife-property casulty insurance

(a) to constrain the use of monopoly power and the prevention of serious distortions to competition and the maintenance of market integrity; (b) to protect the essential needs of ordinary people in cases where information is hard or costly to obtain, and mistakes could devastate welfare; (c) where there are sufficient externalities that the social, and overall, costs of market failure exceed both the private costs of failure and the extra costs of regulation.

(a) Regulated industries want it because it protects them against competition (b) Regulated industries want it because it reduces their risks (c) Customers want it because it gives them con
dence.

A Financial institution is insolvent when its ‘going concern’ value does not exceed the expected value of its liabilities.

(a)Funding liquidity describes the ease with which investors can obtain funding from financiers. (b)Market liquidity is low when it is difficult to raise money by selling the asset at reasonable prices.

The mechanisms that explains why liquidity can suddenly evaporate are caused by maturity mismatches and market illiquidity.

Is the regulatory safety net set up to protect small depositors encourage Financial Firms to take on added risk?