Commercial Banks Flashcards
Approximately what was the value of m1 in 9/14?
2.8 trillion to be exact excluding sweep accounts
Average leverage ratio amongst banks since 08? (Assets to NW)
14.7:1 in 09, 9:1 in 9/14, reflecting diminishing appetites for risk
Components of M1?
Currency + Checkable deposits (NOW accounts, demand deposits, passbook savings deposits, sweep accounts, MMDAs)
Define the Federal Funds Rate
Rate at which banks can lend and borrow federal funds from each other to satisfy the reserve requirement
As of 9/14, sweep accounts constituted ____ of total M1
33%
Examples of checkable deposits?
NOW accounts, demand deposits, sweep accounts
Explain the significance of the DIDMCA Act of 1980
Standardised reserve requirements for all banks: 0-3% on the first 46.8 million worth of deposits, 8-12% on the rest in excess of 46.8 million. Bracket continually keeps up with deposits by increase by 80% of the total growth rate of deposits.
Explain the significance of the Garn St Germain Act.
Introduced an exemption for the first several million deposits. Continually adjusted on an upward basis. Also introduced the MMDA to compete with MMMFs.
Historical trend of the Prime Rate?
3 month treasury note yield + 3%
How has the net worth to assets ratio changed since 08?
6.8% in 12/02. 11.1% in 9/14
List the functions of the reserve requirement set by the Fed
To prevent overleveraging and a subsequent painful deleveraging process in the event of a crisis, to control the money supply, to tax banks, to ensure liquidity in times of liquidity crises
M1 composition as of 9/14?
43% in circulation as currency, 56.9 as demand deposits and other checkable deposits, 2.8 trillion in total
Name the rate at which banks can borrow from the Fed
The discount rate/ discount window
Name two relatively new forms of bank deposits
MMDAs and Certificates of Deposit
What percentage of bank assets are in loans?
As of 9/14, 52.4% (around 50 %)
What percentage of bank assets are in securities?
20.2% as of 9/14
What portion of the 52.4% is taken up by commercial and industrial loans?
Around 20%, 21.6% as of 9/14
Of real estate loans?
48.6% (largest category) in the form of mortgages
Of non real-estate personal loans?
17%
Of the 20.2%, what percentage is in Mortgage-backed securities?
53.5%
What percentage is in government debt securities?
11.6% as of 9/14
What percentage is in government agency bonds?
6.3% of all securities as of 9/14
What percentage is in muni bonds?
10.3%
What percentage of all bank assets are in equity securities?
0.3%
What is the value of FDIC insured deposits per depositor nowadays?
250,000 per depositor, up from 100,000. FDIC compensated via fees on 1/12% of all insured deposits
What is the difference between MZM and M2?
M2 only includes retail MMMFs, whereas MZM includes both retail and institutional MMMFs.
What is a sweep account?
A combined account consisting of either a typical M1 component i.e a demand deposit or NOW account with a Money Market Mutual Fund. Used between banks either to clear debts accrued from ATM withdrawals from each other’s customers or for customers to earn an interest on their deposits
State the balance sheet identity
A= L + NW
Why is NW sometimes overstated?
Because potential liabilities arising from asset writedowns are factored into a firm’s net worth prior to the writedowns themselves. Therefore, NW may appear to be larger than it actually is.
What is a repo?
A form of collateralised loan agreement, usually between two banks or a bank and the Fed. For repos conducted between banks, the loan is usually overnight or extremely short term, and the collateral used is almost always a high quality, stable security such as a treasury note.
Historical trend of the Fed Funds Rate?
Slightly higher than the yield on a three month T-note, since returns on loans based on the rate are taxable.
