1 PART VI Commercial Banking

2 CHAPTER 17 Commercial Bank Operations

3 CHAPTER 17 OVERVIEW A. Describe the most common source of funds for commercial banks B. Explain the most common use of funds for commercial banks Bank Market Structure C. Describe typical Off-Balance Sheet Activities for commercial banks

4 A. The Most Common Source of Funds for Commercial Banks 1. Bank Market Structure: a. Bank Participation in Financial Conglomerates b. Impact of the Financial Service Modernization Act 1.) Benefits of the Act to Individuals and Firms 2.) Benefits of the Act to Financial Institutions

5 A. The Most Common Source of Funds for Commercial Banks 2. Most Common Source of Deposits a.Transaction Deposits Electronic Transactions b. Savings Deposits c. Time Deposits 1.) Certificates of Deposit 2.) Negotiable Certificates of Deposit

6 A. The Most Common Source of Funds for Commercial Banks d. Money Market Deposit Accounts e. Federal Funds Purchased f. Borrowing from the Federal Reserve Banks g. Repurchase Agreements

7 A. The Most Common Source of Funds for Commercial Banks h. Eurodollar Borrowing i. Bonds Issued by the Bank j. Bank Capital k. Summary of Bank Sources of Funds

8 B. The Most Common Uses of Funds by Banks 1. Cash 2. Bank Loans a. Types of Business Loans b.Loan Participations c. Loans Supporting Leveraged Buyouts d. Collateral Requirements on Business loans e. Volume of Business Loans f.Types of Consumer Loans g. Real Estate Loans

9 B. The Most Common Uses of Funds by Banks 3. Investment in Securities a) Bank Investment in Securities over Time 4. Federal Funds Sold 5. Repurchase Agreements 6. Eurodollar Loans

10 B. The Most Common Uses of Funds by Banks 7. Fixed Assets

11 C. Off-Balance Sheet Activities 1. Loan Commitments 2. Standby Letters of Credit 3. Swap Contracts