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51 Cards in this Set

  • Front
  • Back
What types of depository institutions are there?
commercial banks, savings and loan associations (S&Ls), savings banks, credit unions
What are thrifts?
S&Ls, savings banks, and credit unions; investment opportunities much more limited than banks
What are Negotiable Order of Withdrawal Accounts (NOW)?
negotiable deposit that is entirely equivalent to a checking account that thrifts can offer since early 1980s
What is spread income or margin?
depository institutions seek a positive spread between assets (loans and securities) and liabilities (deposits)
What is credit risk/default risk?
risk that a borrower will default on a loan
What is regulatory risk?
risk that regulators will change the rule adversely impacting the earnings of the institution
What is interest rate risk?
risk that a bank will misjudge future interest rates; earn a negative spread
What are secondary reserves?
securities held for the purpose of satisfying net withdrawals and customer loan demands; short-term securities (bad because they have a lesser return)
Who can charter banks?
the state or the federal government
What is the Bank Insurance Fund BIF?
all banks must be insured by it, administered by the FDIC, coverage is 100K per account
What is the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)?
created Bank Insurance Fund (BIF)
What did the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) stipulate?
reserve requirement for members of the Federal Reserve System apply also to state-chartered banks
What is a bank holding company?
a corporation that owns stock in one or more banks; e.g. Citigroup
What are the 3 main services that commercial banks provide?
individual banking, institutional banking, global banking
What is mortgage lending/mortgage banking?
interest income for bank
What are demand deposits?
checking accounts that pay no interest and can be withdrawn upon demand
What are time deposits/certificates of deposit?
have a fixed maturity date and pay either a fixed or floating interest rate
What is a money market mutual fund?
investment company that only invests in money market instruments; money market- financial market for short-term debt instruments
What is the reserve ratio?
all banks must maintain a specified percentage of their deposits in a non-interest bearing account at one of the 12 Federal Reserve Banks
What is the deposit computation period?
period during which a bank must calculate its actual reserves in order to determine if it has met the required reserve ratio
What are excess reserves?
when actual reserves exceed required reserves
What is the federal funds market?
market where banks can borrow and lend reserves
What is the discount window?
where banks borrow from the Fed, bank of last resort; using it too much is a sign of weakness and Fed can curtail the banks borrowing practice
What is the discount rate?
interest rate that fed charges at the discount window
What are money center banks?
banks that raise most of their funds from the domestic and international money markets, rely less on depositors for funds
What are regional banks?
relies primarily on deposits for funding
Who supervises banks at the federal level?
the Federal Reserve Board, the Office of the Comptroller of the Currency, and the FDIC- federal deposit insurance corporation
What is Regulation Q?
at one time imposed a ceiling on the maximum interest rte that could be paid by banks on deposits other than demand accounts
What is disintermediation?
flow of funds, caused by the discrepancy between regulated and market interest rates, out of the regulated commercial banks and thrift institutions into other, unregulated financial institutions, such as money market mutual funds
What did the Garn-St. Germain Act of 1982 permit?
banks to offer money market accounts
What did the McFadden Act of 1927 allow?
each state the right to set its own rules on intrastate branch banking, prevent large banks from taking over and dampening competition
What did the Riegle-Neal Interstate Banking and Branching Efficiency Act permit?
adequately capitalized and managed bank holding companies to acquire banks in any state subject to certain limitations and Federal Reserve approval
What did the Gramm-Leach Bliley Act of 1999 do?
removed obstacles set in by Glass-Steagall, removed restrictions on commercial banks, investment banks and insurance companies and how they are affiliated
What did the Banking Act of 1933 do?
created the FDIC
What are capital requirements?
rules about the percentage of a depository institution's funding that must be in the form of equity or owner-supplied capital
What are credit risk-based capital requirements?
capital requirements for a depository institution that are based on the credit risk of its assets
What is the Basle Committee on Banking Regulations and Supervisory Practices?
produced guideline for credit risk-based capital requirements; consist of central banks and supervisory authorities of the G-10 countries
What is core capital?
consists of common stockholder's equity, certain types of preferred stock, minority interest in consolidate subsidiaries; Tier 1- minimum core capital is 4% of book value of assets; minimum total capital is 8% of risk-weighted assets
What is supplementary capital?
Tier 2; loan-loss reserves, certain types of preferred stock, perpetual debt, hybrid capital instruments, equity contract notes, subordinated debt
What are the interest rate risk-based capital requirements?
capital requirements for a depository institution that are based on the interest rate risk of its assets
What are junks bonds?
non-investment grade corporate bonds, high-yield bonds
What is the Home Owners Loan Act of 1933?
federal S&Ls were chartered by it; now supervised by the Office of Thrift Supervisor
What are credit unions?
smallest/newest depository institutions, members must have a "common bond"- same neighborhood, community; no corporate stock ownership, mutually owned
What are savings banks?
can be mutually owned or stock-holder owned; total deposits are less than those at S&Ls; principal assets are residential mortgages; principal source of funding is deposits
What are advances?
funds that savings and loan associations borrow from the Federal Home Loan Banks
What are the capital adequacy standards for S&Ls?
two ratio tests based on "core" capital and "tangible capital"
What is the National Credit Union Share Insurance Fund (NCUSIF)?
all federally chartered credit unions are insured by it for up to 100k
What is the National Credit Union Administration (NCUA)?
principal federal regulatory agency of credit unions
What is the Central Liquidity Facility (CLF)?
lender of last resort to credit unions, administered by NCUA
What are "natural person" credit unions?
credit unions that provide financial services to qualifying members of the general public
What are corporate credit unions?
credit unions can invest in them; provide investment services- and payment systems- only to natural person credit unions