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Prof. Junnell E. Guia
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The Fed supplies many of the
basic financial services upon which
the economy depends.
It distributes currency and coins to
depository institution to meet the
publics need for money.
It also operates an electronic
payment delivery system called
Automated Clearinghouse, which
processes electronically originated
credit and debit transfers for
participating institutions nationwide.
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New York Fed conducts open market operations to implement the FOMCs policy
directive, it purchases or sells government securities in the open markets, in the form of
the following:
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In a typical repo transaction, adealer puts up liquid securities as
collateral against a cash loan
while agreeing to repurchase the
same securities at a future date
at a higher price that reflects
financing costs.
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- includes the European Central Bank and the national central banks of the
European Union members.
The Eurosystem has set maintaining price stability as its primary objective and
its tasks include the following:
ECBs capital is 5 billion euro.
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Bank of England is the central bank in Great Britain.
The BOEs Monetary Policy Committee (MPC) makes
decisions on interest rates at its monthly meetings, and its
objectives are to ensure price stability and to support
growth.
Bank of Japan is the central bank in Japan.
The mission of the Bank of Japan are similar to those of
other central banks: to maintain price stability and to
ensure an orderly financial systems.
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Prof. Junnell E. Guia
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Traditionally, banks have played several key roles in the economy.
In their intermediation role, banks transform client savings into credit for
businesses and individuals.
As payor, banks made payments for goods and services on behalf of
their customers.
In their guarantor role, banks provide guarantees of customers debts
and obligations.
Banks act as agents on behalf of their customer to manage and
protect their property or to issue and redeem their securities.
Furthermore, banks play an important policy role in that they serve
as q conduit for the Feds monetary policy action to maintain price
stability and sustain economic growth.
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The trends in thebanking sector
The implicationsof the financialmodernization
legislation
Bank reserverequirements and
capitalrequirements
The use oftechnology
banking
The main risksbanks face andhow they manageeach type of risk
The objectives of this chapter are to provide an understanding of:
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Independent Banks
- is a bank that doesntoperate under the control
of a multibank holding
company.
Bank Holding Companies
- owns and managessubsidiary firms. The
holding company is theparent organization, andoperating entities are the
subsidiaries.
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Small bank holding companieshas a total consolidated assets of
less than $150 million.
Large bank holding companiesare: (1) holding companies withtotal consolidated asset of $150million or more; and (2) multibankholding companies, regardless ofsize, that debt outstanding to the
general public.
Top Bank Holding Companies
Name Headquarter State Total Assets ($ billion)
Citigroup NY 1,057
JP Morgan Chase NY 712
Bank of America NC 619
Wachiova NC 319
Wells Fargo CA 311
Banc One IL 262
Taunus Corporation NY 225
FleetBoston MA 192
ABN Amro North America IL 174
US Bancorp MN 164
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Bank holding company can acquire a bank in any state.
The bank holding company must pass the review by the
Federal Reserve Board of Governors.
Citibank
JP Morgan Chase
Bank of America
Bank of New York
Some banks who have gone global:
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Mergers and Acquisitions among banks and financial services companies occur.
Megamerger is a merger between
banks with assets of more than $1
billion.
Supermegamerger is a merger
between banks with assets of more than
$100 billion each.
Citicorp-Travelers
BankAmerica-NationsBank Banc One-First Cargo Norwest-Well Fargo Chase Manhattan-JP Morgan
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Ph
one Centers
AutomaticT
eller Mach
ines(ATM)
Personal
Computers
InternetBanking
MobileBanking
Advances in information and technology have had tremendous impacts on banking,
but larger financial institutions can use any of the new tools of financial engineering
more efficiently. Some of the methods are:
Financial Engineering is the design of new financial instruments, such as derivative
contracts using sophisticated mathematical and statistical models and computer
technology.
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