1. Chapter 4 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 Financial Crisis  The immediate cause or trigger of the crisis was the bursting of the United States housing bubble which happened in 2005–2006. High default rates on "subprime" and adjustable rate mortgages (ARM), began to increase quickly at this time. An increase in loan packaging, marketing and incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to loan money from mortgages in the belief they would be able to quickly refinance at more favorable terms. However, once interest rates began to rise and housing prices started to drop moderately in 2006–2007 in many parts of the U.S., refinancing became more difficult. Defaults and foreclosure activity increased dramatically as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher.United States housing bubblesubprimeadjustable rate mortgagesDefaults foreclosureinterest

19. 19 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。

20. 20 Dollar Value of the Euro

21. 21 What This Means  International banks want the value of their assets to increase, and the value of their liabilities to decrease.  10 million Euros in September of 2009 was worth 14.6 million dollars  Today, they are only worth 13.6 million dollars.

22. 22 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

23. 23  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

24. 24 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。）

25. 25 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

26. 26 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。

27. 27 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

28. 28 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

29. 29 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

30. 30 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

31. 31 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

32. 32 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）

33. 33 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

34. 34 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

35. 35 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

36. 36 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。

37. 37 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

38. 38 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

39. 39 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

40. 40 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

41. 41  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。