Chapter 13
Chapter 13
Chapter 13
Liability Management
The
Bank Buys Funds in Order to Satisfy Loan Requests and Reserve Requirements It is an Interest-Sensitive Approach to Raising Bank Funds It is Flexible The Bank Can Decide Exactly How Much They Need and For How Long The Control Mechanism to Regulate Incoming Funds is the Price of Funds
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Funds Market Repurchase Agreements Federal Reserve Bank Advances from the Federal Home Loan Bank Negotiable CDs Eurocurrency Deposit Market Commercial Paper Long Term Sources
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e
Repurchase Agreements
Involves the Temporary Sale of HighQuality Assets (usually Government Securities) Accompanied by an Agreement to Buy Back Those Assets On a Specific Future Date At a Predetermined Price or Yield
Allows Institutions to Use Home Mortgages as Collateral for Advances A Way to Improve the Liquidity of Home Mortgages and Encourage more Lenders to Provide Credit Number of Loans has Increased Dramatically in Recent Years Maturities Range from Overnight to More than 20 Years FHLB Ca Borrow Cheaply and Pass Savings to Institutions
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Negotiable CD
An Interest-Bearing Receipt Evidencing the Deposit of Funds in the Bank for a Specified Period of Time for a Specified Interest Rate. It is Considered a Hybrid Account Since it is Legally a Deposit
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e
are Dollar-Denominated Deposits Placed in Banks Outside the U.S. Eurocurrency Deposits Originally Were Developed in Western Europe to Provide Liquid Funds to Swap Among Institutions or Lend to Customers Labeled Liabilities to Foreign Branches When a Foreign Branch Lends Eurodeposits to its Home Office
McGraw-Hill/Irwin Bank Management and Financial Services, 7/e
Commercial Paper
Short-Term
Notes With Maturities from 3 or 4 Days to 9 Months Issued By WellKnown Companies. Two Types
Industrial Paper- -Purchase Inventories Finance Paper Issued by Finance Companies and Financial Holding Companies
Banks
Cannot Issue These Directly But Affiliated Companies Can Issue Them.
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is Based on:
Current and Projected Demand and Investments the Bank Desires to Make Current and Expected Deposit Inflows and Other Available Funds
Size
The Relative Costs of Raising Funds From Each Source The Risk of Each Funding Source The Length of Time for Which Funds are Needed The Size of the Institution Regulations Limiting the Use of Various Funding Sources
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