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FIN415 T1

Test 1

QuestionAnswer
Functions of a modern bank.. (12) 1.INTERMEDIATION 2.PAYMENT 3. CREDIT 4.INVESTMENT 5.ADVISORY 6.TRUST 7.INSURANCE 8.SAFE KEEPING 9.AGENCY FUNCTION 10.POLICY 11.CURRENCY EXCHANGES 12.FOREIGN TRADE financing
Types of banks..(8) 1.COMMERCIAL BANKS 2.INVESTMENT BANKS 3.INDUSTRIAL BANKS 4.MORTGAGE BANKS 5.MERCHANT BANKS 6.AGRICULTURAL BANKS 7.IMPORT/EXPORT BANKS 8.COOPERATIVE BANKS
Sources of competition(8) 1.LARGE CREDIT UNIONS 2.FOREIGN BANKS 3.SAVINGS BANKS 4.INVESTMENT BANKS 5.INSURANCE COMPANIES 6.FINANCE COMPANIES 7.MONEY MARKET FUNDS 8.MUTUAL FUNDS
Location of a New Bank Branch Criteria(12) 1.POPULATION SIZE 2.AGE 3.ECON DEVELOPMENT 4. INCOME PER CAPITA 5. VOLUME BUS ACT.'S AND GRTH POTENTIAL 6.INFRASTRUCTURE 7.CRIME 8.ETHNIC 9.BRANCHES 10.TAX 11.EC/BUS ANALYSIS 12.EUROPE 400/8000
What is TRICK and what does it stand for? TRICK summerizes good commercial bank management. "T" stands for TECHNOLOGY. "R" stands for RISK MANAGEMENT. "I" stands for INTEREST RATE. "C" stands for CUSTOMER BASE. "K" stands for CAPITAL ADEQUACY.
What is CAMEL and what does it stand for? Banks rated by agencies and rating is summarized by CAMEL. This helps banks stay in good health "C" stands for CAPITAL ADEQUACY. "A" stands for ASSET QUALITY. "M" stands for MANAGEMENT QUALITY. "E" stands for EARNINGS GROWTH. "L" stands for liquidity
T in TRICK TECHNOLOGY adoption and automation of activities and services. Technology improves efficiency, speed of service, cost-effectiveness and convenience to customers.
R in TRICK Banks manage different types of RISKS. Banks have to manage credit, interest rate, regulatory, business, technology and liquidity risk.
I in TRICK INTEREST RATE on loans and deposits. Profit depends on loan rate-deposit rate=interest profit margin.
C in TRICK CUSTOMER BASE Banks must retain or expand for both borrowers and depositors by aggressive marketing and ads.
K in TRICK CAPITAL ADEQUACY Banks must be well-capitalized to avoid insolvency. 702 banks at risk for failure due to under-capitalization and 140 banks already failed in 2009.
C in CAMEL CAPITAL ADEQUACY Bank must maintain at least 15% equity in TC (equity+debt)
A in CAMEL ASSET QUALITY Quality is better than quantity. Loans are the largest assets along with cash reserve and financial investments.
M in CAMEL MANAGEMENT QUALITY..sometimes called x-efficiency in economics
E in CAMEL EARNINGS GROWTH..percentages in earnings
L in CAMEL LIQUIDITY This is the bank's TCA/TCL. They must prevent insolvency
TARP TROUBLED ASSET RELIEF PLAN...Federal gov allowed to buy toxic assets from troubled banks to stabilize capital ($750B)
TALF TROUBLED ASSET LENDING FACILITY...The Fed ($350b)
Trends in US banking since 1980...(9) 1. PROLIFERATION OF SERVICES(1 STOP) 2. MASSIVE REG'S 3. CONSOLIDATION/EXPANSION 4. BIPOLORIZATION(#BANKS DECREASE, ^TA) 5.RISE IN COMPETITION 6. ^RISK EXPOSURE 7. TECH ADVMT./AUTO. OF SERV'S 8. CONVERGENCE 9. GLOBALIZATION
In terms of TA, a small bank... has less than or equal to $200M
In terms of TA, a mid-sized bank... has between $200M-$1B
In terms of TA, a large bank... has over $1B
6 Regulatory Agencies The Federal Reserve System (the Fed), Comptroller of Currency, Federal Deposit Insurance Coverage (FDIC), Securities Exchange Commission(SEC), Dept. of Justice, and state boards/commissions
Glass Steagall Act of... 1933 separated commercial banking from investment banking for specialization and minimization of bank failures; comm. banks barred from investing in common stocks(gambling w/ investors' $); FDIC and SEC are products of this regulation
Riegle-Neal Interstate Banking and Branching Efficiency Act 1994 permits full-service banking through acquisitions, mergers, and branching across states lines
Gramm-Leach-Bliley Financial Services Modernization Act 1999 dismantled Glass Steagall Act, deregulated banking industry to promote competition
Created by: KSMattP