©2007, the mcgraw-hill companies, all rights reserved 11-1 mcgraw-hill/irwin chapter eleven...
TRANSCRIPT
11-1McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Chapter ElevenCommercial Banks: Industry Overview
11-2McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Definition of a Commercial Bank
• Represent the largest group of depository institutions
• Function similar savings institutions and credit unions
• Liabilities include nondeposit sources of funds
• Loans are broader in range
• Regulated separately from savings institutions and credit unions
• Represent the largest group of depository institutions
• Function similar savings institutions and credit unions
• Liabilities include nondeposit sources of funds
• Loans are broader in range
• Regulated separately from savings institutions and credit unions
11-3McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Differences in Balance Sheets
Commercial Banks Nonfinancial Firms Assets Liabilities Assets LiabilitiesLoans Deposits Deposits Loans
Other Other financial financial assets assets
Other Other Other Other non- liabilities non- liabilities financial and financial and assets equity assets equity
Commercial Banks Nonfinancial Firms Assets Liabilities Assets LiabilitiesLoans Deposits Deposits Loans
Other Other financial financial assets assets
Other Other Other Other non- liabilities non- liabilities financial and financial and assets equity assets equity
11-4McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Commercial Bank Balance Sheet
AssetsTotal cash assets………………. $ 416.9 U.S. gov securities…………… $ 1047.4 Fed Funds/Repurchase………. 384.6 Other…………………………. 447.3 Investment securities………….. 1,879.3 Interbank loans………………. 193.6 Loans exc. Interbank………… 4,624.3 Comm. and Indust…………..$ 890.1 Real estate…………………… 2,544.9 Individual……………………. 806.3 All other……………………… 383.0 Less: Reserve for losses……… 78.1 Total loans……………………… $4,739.8Other assets…………………….. 1,208.4Total assets…………………….. $8,244.4
AssetsTotal cash assets………………. $ 416.9 U.S. gov securities…………… $ 1047.4 Fed Funds/Repurchase………. 384.6 Other…………………………. 447.3 Investment securities………….. 1,879.3 Interbank loans………………. 193.6 Loans exc. Interbank………… 4,624.3 Comm. and Indust…………..$ 890.1 Real estate…………………… 2,544.9 Individual……………………. 806.3 All other……………………… 383.0 Less: Reserve for losses……… 78.1 Total loans……………………… $4,739.8Other assets…………………….. 1,208.4Total assets…………………….. $8,244.4
11-5McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Commercial Bank Balance Sheet
Liabilities and Equity Transaction accounts…………… $ 712.9 Nontransaction accounts………... 4,689.1 Total deposits…………………… $5,406.0Borrowings……………………… 1,769.6Other liabilities………………….. 247.4Total liabilities………………….. $7,423.4Equity…………………………… 821.4
Liabilities and Equity Transaction accounts…………… $ 712.9 Nontransaction accounts………... 4,689.1 Total deposits…………………… $5,406.0Borrowings……………………… 1,769.6Other liabilities………………….. 247.4Total liabilities………………….. $7,423.4Equity…………………………… 821.4
11-6McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Distribution of Assets
30.9
10.8
9.812.7
10.1
5.1
13.7
2.3 4.6Real Estate Loans
C&I Loans
Individual Loans
U.S. Govt Securities
Fed Funds, Rep Agr, Inv Sec's
Cash Assets
Other Assets
Interbank Loans
All other loans
11-7McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Distribution of Liabilities and Equity
8.2
8.7
10
3
21.5
48.6
Large Time Deposits
Transaction Accts
Equity
Other Liabilities
Borrowings
Other Nontransactaccts
11-8McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Balance Sheet Items
• Assets
• Liabilities
• Equity
• Off-Balance-Sheet activities
• Trust services
• Correspondent banking
• Assets
• Liabilities
• Equity
• Off-Balance-Sheet activities
• Trust services
• Correspondent banking
11-9McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Economies of Scale and Scope
• Economies of scale
• Economies of scope
• Megamerger
• X efficiencies
• Economies of scale
• Economies of scope
• Megamerger
• X efficiencies
11-10McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Economies of Scope
• By offering more services to a given customer:– revenue can be enhanced– costs can be reduced
• Cost economies of scope– investments in one financial service (such as lending)
may reduce costs to produce financial services in other areas (such as securities underwriting or brokerage)
• Revenue economies of scope
• By offering more services to a given customer:– revenue can be enhanced– costs can be reduced
• Cost economies of scope– investments in one financial service (such as lending)
may reduce costs to produce financial services in other areas (such as securities underwriting or brokerage)
• Revenue economies of scope
11-11McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Bank Size and Concentration
• Community bank
• Regional or superregional bank
• Federal funds market
• Money center bank
• Community bank
• Regional or superregional bank
• Federal funds market
• Money center bank
11-12McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Bank Size and Concentration
• Retail banking– provide residential and consumer loans
and accepting small deposits
• Wholesale banking– provide commercial and industrial loans
funded with purchased funds
• Retail banking– provide residential and consumer loans
and accepting small deposits
• Wholesale banking– provide commercial and industrial loans
funded with purchased funds
11-13McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Bank Size and Activities
• Large banks have easier access to capital
• Large banks tend to use more purchased funds and have fewer core deposits
• Large banks lend to larger corporations which means that their interest rate spread is narrower– the difference between lending and deposit rates
• Large banks are more diversified and generate more noninterest income
• Large banks have easier access to capital
• Large banks tend to use more purchased funds and have fewer core deposits
• Large banks lend to larger corporations which means that their interest rate spread is narrower– the difference between lending and deposit rates
• Large banks are more diversified and generate more noninterest income
11-14McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Industry Performance
• Provision for loan losses
• Net charge-offs
• Net operating income
• Noncurrent loans
• Provision for loan losses
• Net charge-offs
• Net operating income
• Noncurrent loans
11-15McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Wholesale Banking Services
• Controlled disbursement accounts• Account reconciliation• Lockbox services• Electronic lockbox• Funds concentration• Electronic funds transfer• Check deposit services
• Controlled disbursement accounts• Account reconciliation• Lockbox services• Electronic lockbox• Funds concentration• Electronic funds transfer• Check deposit services
11-16McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Wholesale Banking Services
• Electronic initiation of letters of credit• Treasury management software• Electronic data interchange• Facilitate business-to-business e-commerce• Electronic billing• Verifying identities• Assist small business entry in e-commerce
• Electronic initiation of letters of credit• Treasury management software• Electronic data interchange• Facilitate business-to-business e-commerce• Electronic billing• Verifying identities• Assist small business entry in e-commerce
11-17McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Retail Banking Services
• Automated teller machines (ATMs)
• Point-of-sale debit (POS) cards
• Preauthorized debits/credits
• Paying bills via telephone
• On-line banking
• Smart cards (stored-value cards)
• Automated teller machines (ATMs)
• Point-of-sale debit (POS) cards
• Preauthorized debits/credits
• Paying bills via telephone
• On-line banking
• Smart cards (stored-value cards)
11-18McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved
Regulators
• Federal Deposit Insurance Corporation (FDIC)
• Office of the Comptroller of the Currency (OCC)
• Federal Reserve System
• State Authorities
• Federal Deposit Insurance Corporation (FDIC)
• Office of the Comptroller of the Currency (OCC)
• Federal Reserve System
• State Authorities