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22 Cards in this Set
- Front
- Back
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Bank's Purpose
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Links Savers with Dissavers
3-6-3 |
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US Banking Structure
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over 14,000 in 1980
under 7,000 banks now about 25% of assets are foreign owned over 8,500 mergers have occured since 1980 |
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Banking Costs
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50% = Interest Expense
25% = Wages 25% = Other Non Interest Expenses |
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Dodd-Frank Act
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over 2,300 pages
table of contents 15 pages still writing detailed regulations to implement Banks have responded by hiring additional compliance officers |
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Bank Balance Sheet - Assets
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Loans
Securities Reserves (cash+deposits at Fed) Fixed Assets |
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Bank Balance Sheet - Liabilities
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Deposits
Borrowings (from Fed and other banks) |
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Bank Balance Sheet - Equity
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Stock (par + surplus)
Retained Earnings |
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Bank Income Statement
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Asset = revenue
Liability = expenses Other expenses may be wages, taxes, utilities, postage, and other overhead |
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ROA
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Net Income/Assets
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ROE
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Net Income/Equity
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Exam Ratings, CAMELS
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Capital, Asset Quality, Management, Earnings, Liquidity, Sensitivity to Market Risk
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Banks Financial Objectives
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Maximize Value
Maximize Profit Maximize Cash Flows Maximize ROE or hurdle rate Target ROE Maximize Growth Maximize Market Share Survival/Risk Level Compliance |
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Bank's Risks
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Credit Risk
Liquidity Risk Market Risk Operating Risk Reputation Risk Legal Risk Price Risk Interest Rate Risk Reputation Risk + more (pg 18) |
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Credit Risk Ratios
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Net Chargeoffs/Total Loans
Non-Performing Loans/Total Loans |
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Liquidity Ratios
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Core Deposits/Total Deposits
Loans/Assets |
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Operating Risk Measurement
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Assets per Employee
Wages per Employee |
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Interest Rate Risk Measurement
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GAP, duration GAP
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Tradeoffs
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Risk vs. Return
Operating Cost vs. Quality of Service Short Run vs. Long Run Credit Quality vs. Size/Growth/Market Share Capitalization vs. ROE Growth vs. ROA or ROE |
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Bonds - price to rate relationship?
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Inverse
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Bonds - change in interest rate
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decrease in rate gives a larger proportionate change in bond price than the same increase in rate
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Bonds - long and short bond prices
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Long bond prices move proportionately more than short bond prices for a given r change
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Bonds - low coupon and high coupon
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Low coupon bonds move proportionately more than high coupon bond prices
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