slike bài giảng quản trị ngân hàng chương 4managing and pricing non-deposit liabilities

William Chittenden edited and updated the PowerPoint slides for this edition. MANAGING AND PRICING NON-DEPOSIT LIABILITIES Chapter 4 Key topics 1. Liability management 2. Customer relationship doctrine 3. Alternative non-deposit funds sources 4. Measuring the funds gap 5. Choosing among different funds sources 6. Determining the overall cost of funds 13-2 Customer relationship doctrine The first priority of the bank is to make loans to all qualified customers and if funds are not available the bank should seek out the lowest cost source of funding to meet customers’ needs. 13-3 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 13-4 Nondeposit sources of funds  Federal Funds Market  Repurchase Agreements  Federal Reserve Bank  Advances from the Federal Home Loan Bank  Negotiable CDs  Eurocurrency Deposit Market  Commercial Paper  Long Term Sources 13-5 Recent Growth in Non-deposit Sources of Borrowed Funds at FDIC-Insured Institutions What are the trends? 13-6 Alternative non-deposit sources of funds  The usage of non-deposit sources of funds has risen  Larger institutions rely on the non-deposit funds market as a key source of short-term money to meet loan demand and unexpected cash emergencies 13-7 Federal funds market  Immediately available reserves are traded between financial institution and usually returned within 24 hours, although maturities are negotiated and can extend up to several weeks  Deposits with correspondent banks and demand deposit balances of security dealers and governments can be used for loans to institutions.  Interest rates are negotiated between trading partners and are quoted on a 360-day basis 13-8 13-9 Types of Fed funds loan agreements • Overnight loans  Negotiated via wire or telephone, returned the next day  Normally not secured by specific collateral, although might • Term loans  Longer term Fed funds contracts (several days, weeks, or months) • Continuing contracts  Automatically renewed each day  Normally between smaller respondent institutions and their larger correspondents 13-10 [...]... money market borrowings? 4 What factors must the manager of a financial institution weigh in choosing among the various non-deposit sources of funding available today? 5 Problem 6, 11 and 12 (page 445-6) MANAGING AND PRICING NON-DEPOSIT LIABILITIES Chapter 4 William Chittenden edited and updated the PowerPoint slides for this edition ... issued by finance companies and financial holding companies  Banks cannot issue these directly but affiliated companies can issue them 13-23 Long-term non-deposit sources of funds  Mortgages to fund the construction of new buildings  Capital notes and Debentures are examples of long term sources of funds 13-24 The Funds gap  Gap is based on:  Current and projected demand and investments the bank... institution  Standard trading unit for most money market loans is $1mil, often exceeding borrowing requirements of smallest financial institutions  Small depository institutions may not have credit standing to issue large negotiable CDs  Central bank’s window and Fed funds can make relatively small denomination loans Regulations  Federal and state regulations may limit the amount, frequency and the use... long term sources of funds 13-24 The Funds gap  Gap is based on:  Current and projected demand and investments the bank desires to make  Current and expected deposit inflows and other available funds  Size of this gap determines need for non-deposit funds Non-deposit funding sources: factors to consider  Relative costs of raising funds from each source  Risk of each funding source  Length of time... borrowing forms maybe subject to reserve requirements in case of tight-money policies  Questions & Problems 1 Compare and contrast Fed funds transactions with RPs? 2 What are the advantages and disadvantages of CDs as a funding source? 3 What long-term non-deposit funds sources do banks and some of their closest competitors draw upon today? How do these interest costs differ from those costs associated... the central bank’s (intended) Fed fund rate Relative costs: CDs and commercial papers  Advs:  Rates are more stable, though close to and slightly above Fed funds rate due to longer maturities and marketing costs in finding buyers  Better for long-term needs over several days or weeks  Disavds:  Less popular in short run than Fed funds and borrowing from the discount window Relative costs: effective... longer periods than primary credit to assist small depository institutions in managing significant seasonal swings in their loans and deposits  Emergency Credit  May be authorized in unusual and exigent circumstances by the Board of Governors to individuals, partnerships, and corporations that are not depository institutions Federal home loan bank advances  The FHLB system is a government-sponsored... FHLB has federal charter and can borrow cheaply and pass savings to institutions  FHLB Has 12 Regional Banks  Any bank can become a member of the FHLB system by buying FHLB stock 13-17 Advances from the Federal Home Loan Bank  If it has the available collateral, primarily real estate related loans, it can borrow from the FHLB, as a way to improve the liquidity of home mortgages and encourage more lenders... in the U.S  Thrift CDs – issued by large savings and loans and other nonbanks in the U.S 13-21 Eurocurrency deposit market  Eurodollars 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... funding sources 13-25 Relative costs  Borrowed funds in increasing order of costs:  Federal funds borrowings  Domestic CDs and Eurocurrency deposits  Commercial paper (short-term unsecured notes)  Borrowings from the FED Relative costs: Federal funds borrowings  Advs:  Quick and simple availability (through phone call or online computer)  Maturities are flexible ranging from a few hours to several . William Chittenden edited and updated the PowerPoint slides for this edition. MANAGING AND PRICING NON-DEPOSIT LIABILITIES Chapter 4 Key topics 1. Liability management. financial institution and usually returned within 24 hours, although maturities are negotiated and can extend up to several weeks  Deposits with correspondent banks and demand deposit balances. sources of funds has risen  Larger institutions rely on the non-deposit funds market as a key source of short-term money to meet loan demand and unexpected cash emergencies 13-7 Federal funds market  Immediately