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Deposit-Taking Institutions. Week 2 – August 31, 2005. Types of Financial Institutions. Deposit-taking Commercial banks Thrifts Insurance type Insurance companies Pension funds Managed assets - mutual funds, trusts, etc. Securities firms and pool operators.

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Deposit-Taking Institutions

Week 2 – August 31, 2005


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Types of Financial Institutions

  • Deposit-taking

    • Commercial banks

    • Thrifts

  • Insurance type

    • Insurance companies

    • Pension funds

  • Managed assets - mutual funds, trusts, etc.

  • Securities firms and pool operators


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Classification of Deposit Firms

  • Deposit-taking

    • Commercial banks

    • Savings institutions or thrifts (savings and loans and savings banks)

    • Credit unions (also included among thrifts)

    • Some finance companies

  • Banks are largest

  • Assets differ between thrifts


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Deposit Institutions: 1970-2004

  • Total Financial Assets (billions)1970 2004U.S. Chartered Banks $ 489.7 $ 6,398.1Foreign Bank Offices 9.0 569.7Savings Institutions 252.6 1,691.2Credit Unions 17.7 654.7

  • Banks have maintained relative share at  69% of deposit-taking institution assets

  • Effects of thrift crisis and deregulation


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Commercial Banks

  • Bank charters are licenses to operate (take deposits)

    • National banks

    • State-chartered banks

    • Dual banking in the U.S. versus other countries

    • National versus domiciled nation treatment

  • Membership in the Federal Reserve system

  • Deposit insurance with Federal Deposit Insurance Corporation (FDIC)



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Banks and Branches 2003

Number of Operating Commercial Banks in the U.S.

at Year-end 2003


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Other Deposit-Taking Institutions

  • Charters

    • Savings and loan

    • Mutual savings bank

    • Savings banks

    • Industrial loan or thrift and loan

    • Credit unions

  • State charters versus federal charters

    • Office of Thrift Supervision (OTS) and history

    • National Credit Union Administration (NCUA)


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Thrift Activities

  • Savings and loans, mutual savings associations and savings banks

    • Concentrate in small savers’ deposits

    • Concentrated until 1980 in home loans

    • Tax advantaged in terms of home mortgages

  • Credit unions

    • “Promote thrift and affordable source of credit”

    • Charters and deposit insurance issues

    • Tax advantages



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The Credit Union Movement



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Bank and Thrift Balance Sheets

  • Short-term funds

    • Transactions accounts

    • Small savings accounts

    • Time and certificates of deposit

  • Demand for deposit assets

    • Households

    • Corporations

  • Assets - Securities and Loans


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Deposit Firms’ Income

  • Revenue: Interest income

    • Loans and leases

    • InvestmentsFee income

    • Deposit charges and loan fees

    • Other feesCredit Losses

  • Expenses: Interest expense Non-interest expense

    • Labor and related expenses

    • Communication, fees





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    Bank Affiliates

    • Bank holding companies

      • one-bank holding companies

      • multiple-bank holding companies

      • financial holding companies (new with Gramm-Leach-Bliley Act of 1999)

    • Separation of banking and commerce

    • Servicecorporations as subsidiaries of banks

    • Section 24 and Edge Act subsidiaries of banks





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    Largest Banks and BHCs

    The Top Banks and Bank Holding Companies in the United States Measured by Asset Size

    (Ranked as of 12/31/03)


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    Holding Companies pre-GLB

    • Bank holding companies

      • Banks “take deposits and make loans”

      • Allowable activities closely related to banking

        • Finance companies, mortgage and leasing companies

        • Discount brokerage, etc.

    • Non-bank holding companies

      • Thrifts

      • Insurance companies

      • Securities firms


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    Banks with Glass-Steagall

    Bank Holding

    Company

    Commercial Bank

    Finance Company

    Discount Broker

    Securities Subsidiary

    (Section 24)


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    Financial Holding Company

    Financial Holding

    Company

    Commercial Bank

    Investment Bank

    Insurance Company

    Thrift Institution

    Asset Management

    Company




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    Next class: September 14

    • Read Chapter 16 of Money and Capital Markets

    • Bring a Wall Street Journal to class every Wednesday


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