Term
| The Bank Balance Sheet: a simplified version |
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Definition
Assets:
Cash in Vault
Deposits at Federal Reserve
Loans 63.00%
Securities 24.00%
Liabilities & Net Worth:
Checkable Deposits 23.00%
Nontransactions deposits 59.00%
Borrowings 24.00%
Capital Accounts 8.00% |
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Term
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Definition
| the Federal Reserve notes and coins that the bank has at the teller window and in the vault these are non-earning assets |
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Term
| Deposits at Federal Reserve |
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Definition
| just as you an I hold part of our liquid assets in the form of a balance in our checking account, account so do banks. This item is the bank's checking account at their Federal Reserve Bank. these are non-earning assets |
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Term
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Definition
| bank / customer direct borrowing / lending transactions these are the banks major earning assets |
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Term
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Definition
| assets which the banks purchase in the financial markets; the debt of the federal government and state and local governments. indirect funding these are the banks secondary earning assets |
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Term
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Definition
| yours, mine, business, and governments checking accounts at our bank |
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Term
| Non-transactions Deposits |
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Definition
| interest bearing accounts of you and I on which interest cannot be paid |
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Term
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Definition
borrowings from:
the Federal Reserve (discounts)
other banks (Federal Funds)
loans from parent companies
loans from other corporations (repos)
Eurodollar borrowing |
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Term
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Definition
ownership claims: in the nonbanking industries you call this New Worth
Consists of:
Common Stock
Surplus(excess paid-in capital)
Undistributed profits(retained earnings) |
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Term
| Fractional Reserve System: The Fractional Reserve Requirement |
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Definition
banks (and the other depositories) must hold, in the form of reserves,
a minimum percentage of their deposit balances. |
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Term
| Fractional Reserve System: Reserves |
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Definition
| Cash in the vault plus Deposits at the Federal Reserve Bank |
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Term
| Fractional Reserve System: Required Reservs |
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Definition
| the dollar amount of reserves need based on the institutions deposit balances |
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Term
| Fractional Reserve System: Excess Reserves |
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Definition
the dollar amount of reserves the bank is holding over and above the amount of reserves required
It is on the basis of their excess reserves that the banks buy earning assets (make loans and buy securities)
To the extent that the bank does not use its excess reserves, it is foregoing earnings |
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Term
| Bank Management Principles - Liquidity management |
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Definition
{being able to accomodate a withdrawal of reserves with little cost}
buy Federal Funds
sell repurchase agreements
sell negotiable CD's
sell securities
borrow from Fed (discount)
call in loans
sell loans
Excess reserve reduce the need to obtain reserves. Excess reserves, however,cost. All of the sources of reserves (listed) have an explicit or implicit cost. This is what liquidity management is all about |
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Term
| Bank Management Principles - Risk management |
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Definition
Seek assets with high yield and an acceptable amount of risk
Purchase high yield, low risk, liquid securities
Diversify in terms of industry, maturity, etc.
Manage the liquidity of its assets so that it can maintain its reserve requirement |
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Term
| Bank Management Principles - Liability management |
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Definition
A relatively new concept; plan for asset growth and manage the liabilities to get the funding for the growth.
Federal Funds
Repos
Negotiable CD's
Brokered deposits |
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Term
| Bank Management Principles - Capital management: What is bank capital? |
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Definition
| although no cast in concrete definition exists, it is generally defined as long term funding -- debt and/or equity |
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Term
| Bank Management Principles - Capital management: What good is it? |
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Definition
| it provides a cushion against loss and, therefore, protects against bank failure |
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Term
| Bank Management Principles - Capital management: How much is needed? |
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Definition
| a much debated issue { 5 to 10% is the range generally quoted) |
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Term
Modified DuPont Model - capital on
Return on Equity. |
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Definition
| ROE = Net Income / Equity |
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