BanksChapter 2RiskManagementandFinanciallnstitutions3e,Chapter2,CopyrightJohnC.Hull2012
Banks Chapter 2 Risk Management and Financial Institutions 3e, Chapter 2, Copyright © John C. Hull 2012 1
Nature of Banking Commercial bankingTaking deposits, making loansWholesale vs retailMoney center banksInvestment bankingRaising debt and equity for companies; adviceon mergers and acquisitions, restructurings,etc2RiskManagementandFinancialInstitutions3e,Chapter2CopyrightJohnC.Hull2012
Nature of Banking ⚫ Commercial banking ⚫ Taking deposits, making loans ⚫ Wholesale vs retail ⚫ Money center banks ⚫ Investment banking ⚫ Raising debt and equity for companies; advice on mergers and acquisitions, restructurings, etc Risk Management and Financial Institutions 3e, Chapter 2, Copyright © John C. Hull 2012 2
Structure of Banking in the US Large international banks (small number)Regional banks (several hundred)Small community banks (severalthousand)3RiskManagementandFinancialInstitutions3e,Chapter2,CopyrightJohnC.Hull2012
Structure of Banking in the US ⚫ Large international banks (small number) ⚫ Regional banks (several hundred) ⚫ Small community banks (several thousand) Risk Management and Financial Institutions 3e, Chapter 2, Copyright © John C. Hull 2012 3
History of Bank Regulation in US(page 23)McFadden Act (1927, 1933)Douglas Amendment (1956)Bank Holding Companies Act (1970)Riegel-Neal Interstate Banking andBranching Efficiency Act (1994)RiskManagementandFinancialInstitutions3e,Chapter2,CopyrightJohnC.Hull20124
History of Bank Regulation in US (page 23) ⚫ McFadden Act (1927, 1933) ⚫ Douglas Amendment (1956) ⚫ Bank Holding Companies Act (1970) ⚫ Riegel-Neal Interstate Banking and Branching Efficiency Act (1994) Risk Management and Financial Institutions 3e, Chapter 2, Copyright © John C. Hull 2012 4
ExampleofSimpleBankBalanceSheet: End 2012 (Table 2.2, page 24)AssetsLiabilities590CashDeposits5MarketableSecurities10Subord L.T. Debt580LoansEquity Capital5Fixed Assets100100TotalTotal5RiskManagementandFinancialInstitutions3e,Chapter2,CopyrightJohnC.Hull2012
Example of Simple Bank Balance Sheet: End 2012 (Table 2.2, page 24) Risk Management and Financial Institutions 3e, Chapter 2, Copyright © John C. Hull 2012 5 Assets Cash 5 Marketable Securities 10 Loans 80 Fixed Assets 5 Total 100 Liabilities Deposits 90 Subord L.T. Debt 5 Equity Capital 5 Total 100