1. COMMERCIAL BANK OPERATIONS CHAPTER 17

2. Dr. David P. EchevarriaALL RIGHTS RESERVED2 BANK SOURCES OF FUNDS A.Transaction Deposits; checking accounts 1.Commercial accounts non-interest bearing 2.Interest bearing checking accounts B.Savings Deposits; pass-book savings C.Time Deposits; short-term CDs 1.Managing Term risk 2.Penalties for early withdrawal

3. Dr. David P. EchevarriaALL RIGHTS RESERVED3 BANK SOURCES OF FUNDS D.Money Market Deposit Accounts; providing higher yields via T-bills, S-T securities 1.Provide better returns to customers with large balances 2.Provide roll-up services for commercial clients E.Eurodollar Borrowings; more by businesses F.Bonds/Stock Issued by the Bank; raising long-term capital

4. Dr. David P. EchevarriaALL RIGHTS RESERVED4 BANK USES OF FUNDS A.Cash; transaction needs B.Bank Loans; to create assets (loans to bank customers) 1.Working Capital Loans; important source of S-T liquidity for firms 2.Bridge loans for LBO, interim financing, etc 3.Lines of Credit 4.Importance of Prime rate

5. Dr. David P. EchevarriaALL RIGHTS RESERVED5 BANK USES OF FUNDS C.Investment Securities; purchase of government and corporate bonds D.Lending in Federal Funds Market; lending excess reserves E.Eurodollar Loans; correspondent bank relationships or foreign branches

6. Dr. David P. EchevarriaALL RIGHTS RESERVED6 MEETING RESERVE REQUIREMENTS A.Federal Funds: borrowing from other banks (over-night) B.Borrowing from the Federal Reserve Banks; capital / reserve requirements 1.Cheapest source of lendable funds or to make up short-falls in reserves 2.Increasingly a bank of last resort

7. Dr. David P. EchevarriaALL RIGHTS RESERVED7 OFF BALANCE SHEET ACTIVITIES* A.Loan Commitments (for LBO) B.Standby Letters of Credit (especially for Import/Export financing) C.Swap Contracts (Interest rate and Currency) * Generate fee income

8. EURIBOR Euribor-EBF is an international non-profit making association under Belgian law founded in 1999 with the launch of the Euro and based in Brussels (56, Ave des Arts, 1000 Brussels). Its members are national banking associations in the Member States of the European Union which are involved in the Eurozone.

9. 4 Benchmarks

10. European Central Bank A.The capital stock of the bank is owned by the central banks of all 28 EU member states. B.The primary objective of the European Central Bank, as mandated in Article 2 of the Statute of the ECB, is to maintain price stability within the Eurozone C.The ECB has, under Article 16 of its Statute, the exclusive right to authorize the issuance of euro banknotes. Member states can issue euro coins, but the amount must be authorized by the ECB beforehand (upon the introduction of the euro, the ECB also had exclusive right to issue coins).

11. The bank is based in Frankfurt, the largest financial centre in the Eurozone. Its location in the city is fixed by the Amsterdam Treaty along with other major institutions. In the city, the bank currently occupies Frankfurt's Eurotower until its purpose-built headquarters are built. Scheduled completion - 2014

12. European Banking Authority A.The European Banking Authority (EBA) is a regulatory agency of the European Union headquartered in London, United Kingdom. Its activities include conducting stress tests on European banks to increase transparency in the European financial system and identifying weaknesses in banks' capital structures. [1] The EBA was established on 1 January 2011, upon which date it inherited all of the tasks and responsibilities of the Committee of European Banking Supervisors (CEBS)

13. Dr. David P. EchevarriaALL RIGHTS RESERVED13 HOMEWORK QUESTIONS A.What are the principal sources of funds for banks? B.What are the principal uses of funds for banks? C.In what ways can a bank use the Federal Funds market? D.How does a bank create profit via the fractional reserve system? E.How does the Electronic Funds Transfer (EFT) benefit the banking system?