Depository Institutions:
- Commercial Banks
Largest depository institutions are commercial banks.
Differences in operating characteristics and profitability across size classes.
Notable differences in ROE and ROA as well as the spread
- Thrifts
S&Ls
Savings Banks
Credit Unions
- Mix of very large banks with very small banks
Functions & Structural Differences:
Functions of depository institutions
Regulatory sources of differences across types of depository institutions.
Structural changes generally resulted from changes in regulatory policy.
Example: changes permitting interstate branching
Reigle-Neal Act
Commercial Banks:
Primary assets:
Real Estate Loans: $2,272.3 billion
C&I loans: $870.6 billion
Loans to individuals: $770.5 billion
Investment security portfolio: $1,789.3 billion Of which, Treasury bonds: $1,005.8 billion
Inference: Importance of Credit Risk
Primary liabilities:
Deposits: $5,028.9 billion
Borrowings: $1,643.3 billion
Other liabilities: $238.2 billion
Inference: Highly leveraged
Balance Sheet and Trends
Business loans have declined in importance
Offsetting increase in securities and mortgages
Increased importance of funding via commercial paper market
Securitization of mortgage loans
Some Terminology:
-Transaction accounts
-Negotiable Order of Withdrawal (NOW) accounts
-Money Market Mutual Fund
-Negotiable CDs: Fixed-maturity interest bearing deposits with face values over $100,000 that can be resold in the secondary market.
Off-balance Sheet Activities
Heightened importance of off-balance sheet items
Large increase in derivatives positions is a major issue
Standby letters of credit
Loan commitments
When-issued securities
Loans sold
Other Fee-generating Activities
- Trust services
Correspondent banking
Check clearing
Foreign exchange trading
Hedging
Participation in large loan and security issuances
Payment usually in terms of noninterest bearing deposits
Savings Banks
Mutual organizations
Primarily East Coast
Not exposed to the oil-based shocks of 1980s
Real estate price exposure
Demutualization
May be regulated at both state and federal level
