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Other Institutions. Economics 71a Spring 2007 Mayo, Chapter 4 Lecture notes 2.4. Institutions. Commercial banks Investment managers Mutual funds Pension funds Hedge funds Money market mutual funds Insurance companies Others. Commercial Banks. Consumers Deposits/savings

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other institutions

Other Institutions

Economics 71a

Spring 2007

Mayo, Chapter 4

Lecture notes 2.4

institutions
Institutions
  • Commercial banks
  • Investment managers
    • Mutual funds
    • Pension funds
    • Hedge funds
  • Money market mutual funds
  • Insurance companies
  • Others
commercial banks
Commercial Banks
  • Consumers
    • Deposits/savings
    • Lending/transactions
      • Consumer loans
      • Home mortgages
      • Checking accounts
      • Credit cards
      • Debit cards
      • Foreign exchange
      • Brokerage (recent)
commercial banks4
Commercial Banks
  • Firms
    • Cash management
    • Lines of credit
      • Loan of varying magnitude
      • Similar to credit card
    • Bank loans (term loans)
commercial banks5
Commercial Banks
  • Intermediary roles
    • Between lenders and borrowers
    • Repackaging financial products
  • Regulatory environment
    • Key aspect of monetary policy
    • Federal Deposit Insurance Corporation (FDIC)
    • Federal Reserve System
related institutions
Related Institutions
  • Thrifts (S&L’s)
  • Credit unions
bank regulations
Bank Regulations
  • Reserve requirements
    • Deposits with specific banks
    • Cash
  • Deposit insurance/FDIC
    • $100,000 per account limit
  • Bank failures and bank runs
bank investment bank separation
Bank/Investment Bank Separation
  • Banks versus Investment Banks
    • The Glass-Steagall act (1933)
    • Repealed 1999
  • Now separation is not required
  • Example:
    • Citigroup
investment managers
Investment Managers
  • Mutual funds
  • Pension funds
  • Hedge funds
mutual funds
Mutual Funds
  • Function
    • Consumer investments -> Firms
  • Types
    • Stock (invest in stock market portfolios)
    • Money market (short term lending to firms)
    • Bond
    • Real Estate
mutual funds11
Mutual Funds
  • Allow consumers to better diversify
  • Gather and process investment information
  • Major industry in Boston
pension funds
Pension Funds
  • Manage/invest employee savings/pension plans
  • Similar in spirit to mutual funds
  • Hired by employer
retirement systems
Retirement Systems
  • Defined benefit
    • Contributions to employer
    • Receive formula at retirement
    • Do not control assets
  • Defined contribution
    • Contributions made to employees own account
    • Receive lump sum at retirement
    • Employee controls assets
    • Transferable/increasing
hedge funds
Hedge Funds
  • Large investors
  • Less regulation
  • Broader strategies
    • Derivatives
    • Short sales
    • More risk??
  • Growing fast
money market funds
Money Market Funds
  • Purchase only low risk securities
    • Government bonds
      • Treasury bills, Treasury bonds
      • Tax anticipation notes
    • Short term corporate debt
      • Commercial paper
    • International low risk securities
insurance companies
Insurance Companies
  • Insure individual and corporate risks
  • Receive payments (insurance premia)
  • Payout for losses
  • New issues
    • Trading insurance policies
    • Derivatives
    • High tech risk management
others
Others
  • Information and software services
    • Bloomberg
    • Quicken
    • Microsoft
    • Yahoo
    • Google
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