chapter 10 Flashcards
(29 cards)
retail funding
aka core deposits/nonvolatile/small denomination
not actively traded in the secondary market
funding bank receives from consumers and non institutional depositors
deposit accounts transaction accounts money market demand accounts savings accounts small time deposits
borrowed funding
aka noncore
fed funds purchased
repurchase agreements
federal home loan bank (FHLB)
other borrowings
wholesale funding
borrowed funds large CDs (>$100,000)-biggest source
equity related funding
subordinated debt
common and preferred stock
retained earnings
small bank funding
core deposits; particularly transaction accounts and small time deposits
*increases NIM bc banks don’t pay interest on demand deposit funding
higher average interest rates paid
large bank funding
volatile/managed liabilities, more expensive wholesale funding
fewer domestic deposits; much higher % from foreign
lower average rates paid
volatile/managed liabilities
funds purchased from rate-sensitive investors
fed funds purchased, repurchase agreements
primarilly jumo CDs
core deposits
stable deposits that customers are less likely to remove based on interest rates
transaction accounts, mmda’s, small CD’s, saving accounts
transaction accounrs
- DDA’s: non interest bearing; mostly commercial customers now
- NOW/ATS: negotiable order of withdrawal; interest bearing; no restriction on rates
nontransactional accounts
interest bearing accounts with no/limited check writing privileges
fully FDIC insured up to 250,000
types:
- MMDA’s
- savings accounts
- small time deposits
- jumbo CDs
MMDA’s
attractive to banks bc they don’t have to hold reserve requirements against them
limits on checks
savings accounts/ small time deposits
<$250,000
savings accounts have pretty much been replaced
savings accounts have no fixed maturity but small time deposits have specified maturities ranging from 7 days to ?.
jumbo CD’s
> $100,000
large banks largest source of funding; wholesale funding/volatile funding
not retail deposits; “hot money”
maturity as long as 10 years but short term is more popular
insured up to $250,000
risky for bank
through broker or directly to customer
costs of transactional accounts
- reserve requirements
- processing costs
some fees are charged to offset expenses
cost can still be substantial
transit checks deposited
checks drawn on any bank other than the subject bank
“on us” checks cashed
checks drawn on the bank’s customer’s account
truncated account
physical checks aren’t returned to customer
average historical cost of funds
measure of average unit borrowing costs for existing funds
CDs
- fixed rate: traditional; up to five years
- variable rate: longer periods with rates redone at specified intervals
jump rate cd: one time option to change to current market rate
eurocurrency
financial claim denominated in a currency other than that of the issuing institution
eurodollar
dollar denominated financial claim at a bank outside of the US
eurodollar deposits
dollar denominated deposits in banks outside the US
federal funds purchased
unsecured short term loans that are settled in immediately available funds
most overnight loans
most banks are lenders
borrow immediately available
refers to excess reserve balances traded between banks but hugely inaccurate
security repurchase agreements
short term loans secured by government securities that are settled in immediately available funds
same as fed funds but collateralized
agreement to buy them back at a later date plus interest
lenders transaction is referred to as reverse repo
