Term
| What are the types of Financial Roles? |
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Definition
1.Financial Intermediary
2.Thrift Institution
3.Contractual Savings Organization
4.Securities Firms
5.Financial Firms |
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Term
| What is a Financial Intermediary? |
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Definition
| the process by which savings are accumulated in financial institutions and in turn, lent or invested |
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Term
| What is a Thrift Institution? |
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Definition
| noncommercial bank depository institutions referred to as savings and loans, savings banks, credit union that accumulate individual savings and lend primarily to other individuals |
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Term
| What are Contractual Savings Organizations? |
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Definition
| the collect premiums on insurance policies and employee/employer contributions from participants and provide retirement and insurance against major financial loses. |
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Term
| What are Securities Firms? |
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Definition
| the accept and invest individuals savings and also facilitate the sale and transfer of securities between investors. |
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Term
| What are the types of Securities Firms? |
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Definition
Investment Companies
Mutual Funds
Investment Banking Firms |
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Term
| What do Investment Companies do? |
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Definition
| Sell shares in their firm to individuals and others and invest the pooled proceeds in corporation or government securities |
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Term
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Definition
| open ended investment companies that can issue an unlimited number of their shares to investors and use pooled proceeds to purchase corporation or government securities |
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Term
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Definition
| provide loans directly to consumers and businesses as well as help borrowers obtain mortgage loans on real property |
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Term
| What are the types of Financial Firms? |
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Definition
Finance Companies
Mortgage Banking Firms |
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Term
| What do Finance Companies do? |
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Definition
| provide loans directly to consumers and businesses or aid individuals in obtaining financing |
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Term
| What is involved in a Indirect Transfer with a Commercial Bank? |
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Definition
| Savers send $ to a Business then the business sends a bond directly to the Savers w/o using a Commercial Bank |
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Term
| What is involved in a Indirect Transfer with an Investment Bank? |
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Definition
| Savers send $ to a Business and the business sends a bond directly to the Savers w/o using an Investment Bank |
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Term
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Definition
| When an Investment bank buys bonds first then sells them to savers |
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Term
| What is the difference between Commercial and Investment Banks? |
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Definition
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Term
| What was the main cause of the Great Depression from the Banks? |
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Definition
| Commercial Banks underwriting and trying to sell bonds |
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Term
| What was the Glass-Stegall Act? |
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Definition
| provided for separation of commercial banking and investment banking activities in the US. |
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Term
| What was the Gramm-Leach Bliley Act? |
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Definition
| repealed the separation of Commercial Banking and Investment Banking activities provided for in the Glass Stegall Act |
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Term
| What is a Universal Bank? |
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Definition
| Bank that engages in commercial banking and investment banking |
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Term
| What are the functions of banks and the banking system? |
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Definition
1. Accepts deposits
2.Grants loans
3.issue checking
4.clear checks
5.create deposit money
6.raises capital for business |
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Term
| What was the first bank created? |
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Definition
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Term
| What did the First Bank of the US mainly do? |
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Definition
| Curbed excess note issues from state banks by presenting notes periodically to issuing banks for redemption |
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Term
| What did the Second Bank of the US mainly do? |
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Definition
| Restrained note issuing practices of state Banks by periodically presenting notes to the issuing bank for redemption |
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Term
| What was the State Bank Era referred as? |
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Definition
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Term
| What happened during the State Bank Era? |
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Definition
1.Some banks did what they were suppose to
2. Most engaged in risky banking practices like excessive note issue, lack of adequate bank capital, insufficient reserves against their notes and deposits |
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Term
| What did the National Banking Act do? |
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Definition
1.Allowed to receive federal charters
2.curb excesses of state banks
3.provided funding for Civil War
4.Basis for current Banking Laws |
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Term
| What did the Federal Reserve Act do? |
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Definition
1. Created a Central Bank
2.Tried to eliminate weakness of National Banking Act |
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Term
| What does DIDMCA stand for? |
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Definition
| Depository Institution Deregulation and Monetary Control Act |
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Term
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Definition
1.Eliminated interest rate ceilings on depository institutions (especially S&L's) so they could compete w/ Money Market Funds.
2.Extended the Fed's control to include thrift institutions and commercial banks that were not part of the system. |
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Term
| What did the Garn-St. Germain Depository Act do? |
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Definition
1.Interst rates on S&L's short term deposits increased dramatically as depositors shift from Passbook savings to NOW accounts.
3.Interest rates on long-term loans remained the same(fixed rates)->
4.Many S&L's faced a difficult mismatch of interest rates
5.Act allowed S&L's to make non-residential real estate loans, variable rate mortgages |
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Term
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Definition
| Negotiable Order of Withdraw |
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Term
| What was the Mid 1980's to mid 1990's S&L crisis? |
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Definition
| Over 2000 S&L's closed or were merged due to mismanagement and fraudulent activities as well as mismatched short term/long term interested rates. |
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Term
| What did the Dodd-Frank Wall Street Reform and Consumer Protection Act do mainly? |
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Definition
| Promotes transparency and accountability in the financial system |
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Term
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Definition
| Federal Savings and Loans Corp |
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Term
| What happened to the FSLIC and what replaced it? |
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Definition
It went Bankrupt in 88'
replaced by the SAIF (Savings Associated Insurance Fund) |
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Term
| What does the FDICIA mean? |
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Definition
| Federal Deposit Insurance Corp Improvement Act |
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Term
| What does the Federal Deposit Insurance Corp Improvement Act do? |
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Definition
| Provides for differences in the premiums banks pay based on the relative riskiness of banks |
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Term
| What is a Dual Banking System? |
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Definition
| allows most banks to obtain charters from the Federal Government or state government commercial banks |
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Term
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Definition
| a bank can have only one full service office |
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Term
| What is a Limited Branch Banking? |
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Definition
| Allows additional offices within a defined geographical location near the home office |
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Term
| What does OBHC mean and what is it's purpose? |
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Definition
-One Bank Holding Company
-permits a firm to own and control 1 bank |
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Term
| What does MBHC mean and what is it's purpose? |
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Definition
| Multibank Holding Company |
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Term
| What did the Bank Holding Company Amendments do? |
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Definition
| Allowed bank holding companies to acquire companies with activities closely related to banking like Credit Cards, Data Processing, Insurance |
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Term
| Bank Holding Companies hold what amount of the banks in the US? |
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Definition
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Term
| What is the equation for a bank balance sheet? |
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Definition
| Assets = Liabilities + Owners Capital |
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Term
| What are typical assets on a Bank's Balance Sheet? |
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Definition
-Cash and Balances due from depository institutions
-securities
-loans
-other |
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Term
| What are typical Liabilities and Owners Capital on a Bank's Balance Sheet? |
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Definition
-Deposits
-Other Liabilities
-Owners Capital |
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Term
| What mainly are the securities held by banks in their balance sheets? |
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Definition
| Securities from US Treasury and other govt. organization |
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Term
| What is a Prime Interest rate? |
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Definition
| a rate charged for short term unsecured loans that usually is only given to well stated businesses |
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Term
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Definition
| interest is deducted from the stated amount of the loan at the time the money is lent and the stated amount is paid when the loan matures |
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Term
| What are the Liabilities and Owner Capital on a Bank's balance sheet? |
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Definition
-Checking accounts
-NOW Accounts
-MMDA
-CD's
-Federal Funds |
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Term
| What are the characteristics of a NOW account? |
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Definition
| it is a transaction account that earns interest and unlimited checks can be written |
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Term
| What are the characteristics of a MMDA? |
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Definition
| It is a Savings account, limited amount of withdraws per month |
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Term
| What does MMDA stand for? |
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Definition
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Term
| What characteristics do CD's have? |
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Definition
| -stated maturity and pay fixed rates of interest or are sold at a discount |
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Term
| What characteristics do Federal Funds have? |
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Definition
| short term loans to help the bank keep its minimum reserve requirments |
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Term
| What are the types of Owner Equity in a Bank's Balance Sheet? |
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Definition
-Loan-loss Reserve
-Trust Preferred Security |
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Term
| What is a loan loss reserve? |
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Definition
| used in case loans have to be written off |
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Term
| What is a Trust-Preferred Security? |
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Definition
| Security possessing characteristics of both equity and debt issues |
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Term
| What is involved with a Trust Preferred Security? |
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Definition
-A company creates trust-preferred securities by creating a trust and issuing debt to the entity
-Because the interest paid to the trust is tax deductible the company may realize significant tax benefits |
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Term
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Definition
| The ability to meet depositor withdraws and to pay off other liabilities when they come in |
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Term
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Definition
| ability to keep the value of a banks assets greater than its liabilities |
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Term
| What is Liquidity Management? |
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Definition
| Likelihood the bank wont be able to meet it's depositor's withdraw demands or liabilities |
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Term
| What are Primary Reserves? |
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Definition
| vault cash and deposits held at other depository institutions and at the Fed |
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Term
| What are Secondary Reserves? |
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Definition
| short term securities held by banks that can be quickly converted into cash at a small expense to banks |
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Term
| What is Credit(default) risk? |
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Definition
| the likelihood that borrowers will not make interest and principle payments |
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Term
| What can a bank do for Liability Management? |
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Definition
| If a bank needs cash to meet an unexpected depositor withdraw it could raise short term interest rates to attract more liabilities (CD's) |
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Term
| What does it mean to be Solvent? |
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Definition
| Assets>liabilities and Owners Cap>0 |
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Term
| What is Interest Rate Risk? |
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Definition
| the risk associated with changing market interest rates on the value of underlying debt instruments |
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Term
| When interest rates increase the value of bonds do what? |
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Definition
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Term
| Why do regulators set a minimum capital ratio for banks? |
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Definition
| to ensure that banks have an adequate cushion against credit risk and interest rate risk |
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Term
| What is the equation for Basic Equity Capital Ration? |
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Definition
| (Equity Capital/Total Assets)x100 |
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Term
| What is the equation for Tier 1 Capital and it's ratio? |
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Definition
-OE + TruPS - intangible assets
-Tier 1 Capital/Risk-adjusted assets |
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Term
| What is the equation for Tier 2 Capital? |
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Definition
| loan-loss reserve + other securities + unrealized gains on marketable securities |
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Term
| What is the equation for total capital? |
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Definition
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Term
| What is the equation for the Total Capital Ratio? |
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Definition
| Tier 1 + Tier 2/Risk-adjusted assets |
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Term
| When is a bank considere3d to be adequately capitalized and according to who? |
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Definition
-When Tier 1 >=4% and (Tier 1&2)>=8%
-Bank for International Settlements (BIS) |
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Term
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Definition
| Bank for International Settlements |
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