1. Chapter 7 An Introduction to Financial Intermediaries and Risk

2. 2  Common Characteristics Common Characteristics  Types of risks faced by all FIs Types of risks faced by all FIs  The Balance Sheets of FIs The Balance Sheets of FIs  Pulling Things Together Pulling Things Together

3. 3 Common Characteristics (1)  Financial intermediaries (FIs) link up net borrowers and net lenders  in the process, they provide the public with a wide range of financial services

4. 4 Why do FIs perform these services?  To earn profits  the quantity, quality, and type of financial services offered will change as the perceived profitability of these services changes

5. 5 Why do FIs perform these services?  Banks “hire” funds from depositors  the interest a bank pays on deposits is a cost of doing business  Banks then lend the funds to households, firms, and governments---- the interest earned on loans represents revenue to the bank  The difference between the interest earned and the interest paid is the primary determinant of the bank’s profitability

6. 6 Why do FIs perform these services?  if funds can be hired more cheaply by providing a new type of deposit, banks will offer that deposit  if a particular type of lending turns out to be less profitable than expected, banks will have an incentive to lend less in this area

7. 7 Common Characteristics – FIs as Firms

8. 8 Common Characteristics (2 ）  In general, FIs provide services to the public for these purposes  to reduce the risks and costs associated with borrowing, lending, and other financial transactionsreduce the risks and costs  to fulfill the demand for various financial assets and services, including protection against the financial losses associated with various exigenciesfulfill the demand for various

9. 9 Reduction of Risk and Costs  FIs use their expertise to appraise the risk of default  can assess risk better than individuals  Since the funds of many net lenders are spread to thousands of net borrowers, risk is also reduced through diversification

10. 10 Provision of a Variety of Financial Services  FIs provide net borrowers with borrowing opportunities that they may not have otherwise  In addition, they provide a menu of financial claims and depository services tailored to meet the needs of net lenders  relatively safe and liquid claims  contingent claims that offer protection from some catastrophic event 或有索取权：对财产及人身保险的收益索取权，以便保 证公众在发生盗窃、车祸、自然灾害以及死亡时遭受 的严重财务损失得到赔偿。

11. 11 Common Characteristics (3 ）  FIs are regulated by various levels and agencies of government  to promote a smooth-running, efficient financial system  to protect the public from fraud and other abusive practices  to promote competition in the market for financial services  to preserve the public’s confidence in the system

12. 12 Regulation  In the financial system, regulations take on many forms  entry into the industry is tightly controlled  a government charter is needed to engage in banking  restrictions on the types of assets and liabilities

13. 13 Effects of Regulation  They tended to reinforce and encourage specialization by FIs in particular services  There are many different types of assets and liabilities found on FIs’ balance sheets  Over time, FIs saw the benefits of diversification  they discovered that providing the public with a wider range of financial services could be profitable

14. 14 Types of Risk Faced by FIs  credit (default) risk  interest rate risk  liquidity risk  exchange rate risk

15. 15 Credit (Default) Risk  Credit (default) risk is the risk that the borrower will be unwilling or unable to live up to the terms of the liability 信用（违约）风险：借方不愿意或无力在债务到期时 偿还的风险。  FIs employ experts in risk assessment to evaluate default risk  uses information from balance sheets, income statements, and credit checks

16. 16 Interest Rate Risk  Interest rate risk is the risk that the interest rate will unexpectedly change so that the costs of an FIs liabilities exceed its earnings on assets  利率风险：利率发生未曾预见到的变化导致金融 机构的负债成本高于资产收益。  an FI’s profitability depends on the spread between the interest rate earned on assets and that paid on liabilities  FIs have responded to this risk by using adjustable rate loans and financial futures, options, and swaps

17. 17 Liquidity Risk  Liquidity risk is the risk that occurs when an FI is required to make a payment when its assets are long-term and cannot be quickly converted to liquid funds without a capital loss 流动性风险：金融中介机构需要进行支付时，无法 不受任何损失的将长期资产迅速变现的风险。  depositors unexpectedly withdraw funds  an insurance company incurs high losses due to an unexpected catastrophic event

18. 18 Exchange Rate Risk  Exchange rate risk is the risk that changes in the exchange rate will cause the dollar value of a foreign currency or foreign financial assets to fall 汇率风险：汇率发生变化时会降低外汇以及 外币表示的金融资产的价值。

19. 19 The Balance Sheets of FIs  A balance sheet is an accounting statement that presents the monetary value of the assets, liabilities, and net worth at a specific point in time  for an FI, assets include loans and securities  for an FI, liabilities include deposits and borrowed funds 资产负债表：一张关于某一经济单位在某一特定时点的资 产、负债和所有者权益的货币价值的财务报表。  Assets must be equal to the sum of liabilities and net worth

20. 20  Deposit-Type FIs Deposit-Type FIs  Contractual-Type FIs Contractual-Type FIs  Investment-Type FIs Investment-Type FIs  Finance company-type FIs Finance company-type FIs

21. 21 Deposit-Type FIs  Depository institutions have a large portion of liabilities as deposits  Depository institutions include  commercial banks （商用银行：吸收支票、定期存款、 储蓄存款并对商业企业发放贷款的存款机构。）  Thrifts （储蓄机构）  savings and loan associations (S&Ls) （旨在聚集本地居民储蓄、 用于支持住房建设和购买的一种存款机构）  savings banks （用于支持住房建设和购买的一种存款机构）  credit unions （合作性的、非营利的、免税的存款机构，其服务 对象是持有其共同债券的成员。）

22. 22 Commercial Banks  Commercial banks are typically defined as institutions that issue deposit liabilities that are checkable and extend loans to commercial businesses  They do many other things as well  issue time and savings deposits  offer many other types of loans

23. 23 Commercial Banks  Deposits fall into three categories  transactions deposits  can be exchanged for currency and are used by writing a check or using an electronic transfer 可以提现、可以通过签支票或电子转账等方式进行支付 的存款账户。  savings deposits  cannot be withdrawn by writing a check but are highly liquid 高流动性活期存款，可随时支取，无需签支票支取。  time deposits  have a scheduled maturity and if funds are withdrawn early there is a penalty 有固定的到期日，如提前支取则收取罚金的存款。

24. 24 Commercial Banks  Deposits are the main source of funds for a bank  banks have developed other nondeposit sources of funds  fed funds  repurchase agreements  Eurodollar borrowings

25. 25 Commercial Banks  A bank must decide how best to use its funds to maximize profit and minimize risk  the bank will try to diversify its portfolio by holding a mix of loans  the bank will also hold reserve assets  increases liquidity  required by the Fed

26. 26 Savings Associations  Savings associations include S&Ls and savings banks  developed to help finance the construction and purchase of homes  The major source of funds for savings associations are time, savings, and checkable deposits  The major use of funds for savings associations is mortgage loans

27. 27 Savings Associations  During the 1980s, the S&L industry experienced multiple strains (the S&L “crisis”)  more than 500 institutions became insolvent and were seized by regulators at the taxpayers’ expense ($124 billion)  the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 created a new federal regulatory structure to resolve this crisis

28. 28 Credit Unions  Credit unions are cooperative, nonprofit, tax- exempt associations operated solely for the benefit of members  members must share a “common bond”  The major source of funds for credit unions are members’ savings accounts  The major use of funds for credit unions are consumer loans and mortgage loans

29. 29 Contractual-Type FIs  Contractual-type FIs have liabilities that are defined by contract  generally call for regular payments to the FIs in exchange for future payments under specified conditions (contingent claims)  Contractual-type FIs include  life insurance companies （寿险公司）  pension funds （养老基金、退休基金）  property and casualty companies （财产保险公 司）

30. 30 Life Insurance Companies  Life insurance companies offer protection against the financial costs, losses, and reductions in income associated with death, disability, old age, and various other health problems  premiums are paid to the company  the company lends these funds  not overly concerned about liquidity  the company uses the income from these loans to pay benefits to policyholders

31. 31 Pension Funds  Pension funds are tax-exempt institutions set up to provide participants with retirement income  some are run by private companies, while others are associated with governmental units  little need for liquidity so long-term securities are purchased

32. 32 Property and Casualty Companies  Property and casualty companies provide financial protection against unexpected occurrences on property  automobiles and homes  These firms are taxed at the full corporate rate  The stream of payments made to individuals is much less predictable than for life insurance companies

33. 33 Investment-Type FIs  The major types of FIs in the investment category are mutual funds 共同基金：从公众处获得并集中基金购买长 期金融证券，将扣除一定费用后的收益返还 给集资人的投资型中介机构。  acquire and pool funds from the public  invest the funds in capital market instruments  return the income received (minus a management fee) to investors  money market mutual funds are an example of funds that are limited to a particular type of financial claim 货币市场共同基金：投资于货币市场金融工具的共 同基金。

34. 34 Finance Company-Type FIs  Finance companies lend funds to households to finance the purchase of consumer durables and to businesses to finance inventories and the acquisition of equipment 金融公司：向个人提供消费品购买融资，向企业提 供存货融资的中介机构。  in the past, these FIs loaned funds to borrowers considered risky  today, these FIs lend to all types of borrowers

35. 35 Pulling Things Together  Contractual-type FIs are the largest group in terms of total assets  Each group can be distinguished from other groups by the financial services they specialize in and the composition of their balance sheets

36. 36 Pulling Things Together  The composition of each FI’s balance sheet will depend on  the range of financial services offered  any specialization in services offered  the tax status of the institution  the nature of the institution’s liabilities  legal constraints or regulations governing the types of assets and liabilities that can be acquired

37. 37 Trend Toward Financial Supermarkets  Banks are increasingly trying to enter the markets traditionally provided by other FIs  Other FIs are trying to enter the markets traditionally served by banks  The Gramm-Leach-Bliley Act (GLBA 格雷 姆 - 里奇 - 比利雷法 ) removed barriers between banking and other financial services  created holding companies to link commercial banks with securities, and insurance firms

38. 38  格雷姆 - 里奇 - 比利雷法（ GLB Act ）也就是 1999 年 的金融现代化法案，它是在美国颁布的一项法律， 用于控制金融机构处理个人信息的方式，这项法案 包括三部分：财产保密条例、安全措施条例、托辞 供应。其中财产保密条例，用于管制对私人财产信 息的搜集和泄露；安全措施条例，用于保证财政机 构必须实现对私人信息的安全保护；托辞供应用于 禁止使用不正当的托辞访问私人信息。 GLB 法还要 求金融机构给顾客一个书面的保密协议，以说明他 们的信息共享机制。