CHAPTER 17

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 2

D. 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 E. Eurodollar Borrowings; more by businesses F. Bonds/Stock Issued by the Bank; raising long-term capital 3

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 4

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 5

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 6

Loan Commitments (for LBO) Standby Letters of Credit (especially for Import/Export financing) Swap Contracts (Interest rate and Currency) * Generate fee income 7

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? Q&A: 1, 2, 7, 12, Interp: c 8