Tuesday, March 31, 2009

1.The term savings association has replaced S&L to capture the change in the structure of the industry. In 1978, The Federal Home Loan Bank Board (FHLBB), at the time the main regulator of savings associations, began chartering federal savings banks insured by the Federal Savings and Loan Insurance Corporation (FSLIC). In 1982, the FHLBB allowed S&Ls to convert to federal savings banks, the title associated with this sector of the thrift industry was revised to reflect this change.

2. In the 1970s, these Regulation Q ceilings were usually set at rates of 5 ¼ or 5 ½ percent.
Net Interest Margin
Interest income minus interest expense divided by earning assets.
Disintermediation
Withdrawal of deposits from depository institutions to be reinvested elsewhere, e.g., money market mutual funds.
Regulation Q ceiling
An interest ceiling imposed on small savings and time deposits at banks and thrifts until 1986.

Regulator forbearance
A policy not to close economically insolvent FIs, allowing them to continue in operation.
Savings institutions
Savings associations and savings banks combined.

3. At the time of its dissolution in 1995, the RTC had resolved or closed more than 700 savings associations and savings banks at an estimated cost of $200 billion to U.S. taxpayers.
QTL test
Qualified thrift lender test that sets a floor on the mortgage related assets that thrifts can hold (currently, 65 percent).
4. The major enterprises are GNMA, FNMA, and FHLMC.
5. Failure to meet the 65 percent QTL test results in the loss of certain tax advantages and the ability to obtain Federal Home Loan Bank advances (loans).
6. The Federal Home Loan Bank System, established in 1932, consists of 12 regional Federal Home Loan Banks (set up to the Federal Reserve Bank system) that borrow funds in the national capital markets and use these funds to make loans to savings associations that are members of the Federal Home Loan Bank. The Federal Home Loan Banks are supervised by the Federal Home Loan Bank Board.

The Office of Thrift Supervision. Established in 1989 under the FIRREA, this office charters and examines all federal savings institutions. It also supervises the holding companies of savings institutions.
The FDIC. The FDIC oversees and managers the Savings Association Insurance Fund (SAIF), which was established in 1989 under the FIRREA in the weak of FSLIC insolvency. The SAIF provides insurance coverage for savings associations. Savings banks are insured under the FDIC’s Bank Insurance Fund (BIF) and are thus also subject to supervision and examination by the FDIC.
Other Regulators. State chartered savings institutions are regulated by state agencies—for example, the Office of Banks and Real Estate in Illinois—rather than the OTS.

7. The sharp drop in ROA and ROE in 1996 was the result of a $3.5 billion special assessment on SAIF deposits. Without these one-time charges, ROA would have been 0.89 percent rather than the – 0.02 percent in Figure 12-5, while ROE would have been 10.36 percent rather than – 0.26 percent.
8. Behind Travelers Group/Citicorp ($74 billion), and BaneOne/First Chicago NBD ($30 billion).

9. Ownership in corporate credit unions is represented by the deposit accounts of their member credit unions, with each member having equal voting rights.

10. AWANE is a trade association of companies that serve the automotive aftermarket through sales of auto parts and other items. It is the association member companies and firms related to the automotive business, as well as their owners and employees, that AWANE Credit Union serves through its common bond.
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Thursday, March 12, 2009

Information / monitoring costs . although global expansion allow FI potential to better diversify its geography risk the absolute level of exposure in certain areas such as lending can be high, especially if the FI fail to diversify in an optimal fashion. Portfolio frontier ( see chapter21 ) . foreign activities may also be riskier for the simple reason that monitoring and information collection costs are often higher in foreign markets . for example, Japanese and German accounting standards differ significantly from the generally accepted accounting principles ( GAAP ) that U.S. firms use. In addition, language, legal, and cultural issues can impose additional transaction costs on international activities. Finally, because the regulatory environment is controlled locally and regulation imposes a different array of net cost in each market, a truly global FI must master the various rules and regulation in each market.

Nationalization / expropriation . to the extent that an FI expands by establishing a local presence through investing in fixed assets such as branches or subsidiaries, it faces the political risk that a change in government may lead to the nationalization of those fixed assets .31 if foreign FI in U.S. courts rather than from the nationalizing government. For example, the resolution of the outstanding claims of depository in City corp’s branches in Vietnam following the communist takeover and expropriation of those branches took many years .

Fixed costs . the fixed costs of establishing foreign organization may be extremely high . for example, a U.S.FI seeking an organizational presence in the London banking market faces real estate prices significantly higher than in New York. Such relative cost can be even higher if and F1 choose to enter by buying and existing U.K bank

30.one reason that Sumitomo bank took a limited partnership stake in Goldman Sachs in 1986 was to acquire knowledge and expertise about the management and valuation of complex financial instruments.
31. such nationalizations have occurred with some frequency in African countries

Rather than establishing a new operation because of the cost of acquiring U.K equities (i.e. paying an acquisition premium).these relative cost considerations become even more important if expected volume of business to be generated , and thus the revenue flows, from foreign entry are uncertain. The failure of U.S acquisition of U.K merchant banks to realize expected profits following in the 1986 deregulations in the United Kingdom is a good example of unrealized revenue expectations vis-à-vis the high fixed costs of entry and the cost of maintaining a competitive position.32

Global Banking Performance
While U.S depository institution performance deteriorated only slightly in the early 2000s, not all countries faired as well. In April 2001 the Japanese government announced plans for a government backed purchase of Y 11000 billion ($90 billion) of shares of Japanese banks as part of an increasingly desperate drive to avert a banking collapse, recover from a16 year low in the levels of Japanese equity markets, and stem the country’s real sector decline into recession .this was the third major attempt to bail out the banking system since 1998. previous attempts at bailing out the banking industry were unsuccessful. For example , in march 2001 Fitch investors service ( a major international rating agency ) put 19 of the biggest Japanese banks on their credit watch list. The purchase of bank shares was intended to offset losses from the writing off of the situation has been better in Europe .despite the slowdown in the U.S economy, European banks continued to perform well, even those banks without a significant presence in the United states J.P Morgan securities estimated than in the early 200s more than half of European banks loans outside western Europe were to North America . banks with the largest exposure included those with a retail presence ( Mortgages small business loans )such as ABN AMRO, deutsche bank and HSBC. In most cases, however, these exposure were less than 20 percent of their loan portfolios. There is some concern that economic slow down in the United state will spread to Europe in the 2000s, affecting the performance of all European banks. Indeed in mid 2001, economic growth rates in European Union countries started to fall.

32. however U.S banks and securities firms fared better since the Canadian deregulation of securities business in 1987 (see “Canada’s borrowing its Fat Fees Lures Wall Street” The New York Times , April 15, 1995, p. D1)


Summary
This chapter provided an overview of the major activities of commercial banks and recent trends in the banking industry. Commercial banks rely heavily on deposits to fund their activities, although borrowed funds are becoming increasingly important for the largest institutions. Historically, commercial banks have concentrated on commercial or business lending and on investing in securities. Differences between the asset and liability portfolio of commercial banks and other financial institutions, however , are being eroded due to competitive forces, consolidation, regulation, and changing financial and business technology. Indeed, in the early 2000s , the largest group of assets in commercial bank portfolios were mortgage related. The chapter examined the relatively large decline in the number of commercial banks in the last decade and reviewed reasons for the recent wave of bank mergers. Finally, the chapter provided an overview of this industry’s performance over the last decade and discussed several global issues in commercial banking.
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27.this bank began formal consolidated operations in 2002
28. A.N Berger, Q. Dai , S. Ongena , and D.C Smith, in “To what Extent will the banking industry be Globalized ? A study of bank nationally and reach European Nations. They find that foreign affiliates of multinational companies choose host nation banks for cash management services more often than home-nation or third-nation banks. They also find if a host nation is the choice of nationality, then the firm is much less likely to choose a global bank.
29. this, of course, assumes that stockholders are sufficiently undiversified to value FI s diversifying on their behalf. Read More..
25.See “out with the old, in with the new .”by Justyn Trenner, the banker , may 2000, pp 110-11
26. Virtually all U.S banks are members of the FDIC’s insurance fund.



Figure 11-10 Bank Regulators

Insured commercial Banks (FDIC-BIF) 2001 Read More..