1. COMMERCIAL BANK OPERATIONS
CHAPTER 17

2. BANK SOURCES OF FUNDS Transaction Deposits; checking accounts
Commercial accounts non-interest bearing
Interest bearing checking accounts
Savings Deposits; pass-book savings
Time Deposits; short-term CDs
Managing Term risk
Penalties for early withdrawal
Dr. David P. Echevarria
ALL RIGHTS RESERVED

3. BANK SOURCES OF FUNDS
Money Market Deposit Accounts; providing higher yields via T-bills, S-T securities
Provide better returns to customers with large balances
Provide roll-up services for commercial clients
Eurodollar Borrowings; more by businesses
Bonds/Stock Issued by the Bank; raising long-term capital
Dr. David P. Echevarria
ALL RIGHTS RESERVED

4. BANK USES OF FUNDS Cash; transaction needs
Bank Loans; to create assets (loans to bank customers)
Working Capital Loans; important source of S-T liquidity for firms
Bridge loans for LBO, interim financing, etc
Lines of Credit
Importance of Prime rate
Dr. David P. Echevarria
ALL RIGHTS RESERVED

5. BANK USES OF FUNDS
Investment Securities; purchase of government and corporate bonds
Lending in Federal Funds Market; lending excess reserves
Eurodollar Loans; correspondent bank relationships or foreign branches
Dr. David P. Echevarria
ALL RIGHTS RESERVED

6. MEETING RESERVE REQUIREMENTS
Federal Funds: borrowing from other banks (over-night)
Borrowing from the Federal Reserve Banks; capital / reserve requirements
Cheapest source of lendable funds or to make up short-falls in reserves
Increasingly a bank of last resort
Dr. David P. Echevarria
ALL RIGHTS RESERVED

7. OFF BALANCE SHEET ACTIVITIES*
Loan Commitments (for LBO)
Standby Letters of Credit (especially for Import/Export financing)
Swap Contracts (Interest rate and Currency)
* Generate fee income
Dr. David P. Echevarria
ALL RIGHTS RESERVED

8. HOMEWORK QUESTIONS What are the principal sources of funds for banks?
What are the principal uses of funds for banks?
In what ways can a bank use the Federal Funds market?
How does a bank create profit via the fractional reserve system?
How does the Electronic Funds Transfer (EFT) benefit the banking system?
Dr. David P. Echevarria
ALL RIGHTS RESERVED