对外经济贸易大学：《银行管理学 Bank Management》课程教学资源（授课教案课件）Chapter 06 Managing Liabilities

卧的贸易孝 1951 Chapter 6 Managing Liabilities

Chapter 6 Chapter 6 Managing Liabilities Managing Liabilities

Composition of Bank Liabilities Different types of liabilities Interest-bearing and non-interest-bearing ■ Transaction accounts: Low explicit interest rates High non-interest processing costs ■ Other accounts: Limited check writing capabilities ▣Higher rates Liabilities with long-term fixed maturities Highest interest rates Lowest non-interest transaction 爸封强的黄香+孝

Composition of Bank Liabilities Composition of Bank Liabilities † Different types of liabilities „ Interest-bearing and non-interest-bearing „ Transaction accounts: † Low explicit interest rates † High non-interest processing costs „ Other ac c ounts: † Limited check writing capabilities † Higher rates „ Liabilities with long-term fixed maturities † Highest interest rates † Lowest non-interest transaction

Prior to 1960 Banks relied on standardized demand and savings deposits as their primary source of funds. Gov't determined allowable interest rates, and all banks paid the maximum. 目 Banks compete for funds only by differentiating the quality of service and paying implicit interest. Primary strategy:office and branches. 麓的贫香小手

Prior to 1960 Prior to 1960 † Banks relied on standardized demand and savings deposits as their primary source of funds. † Gov’t determined allowable interest rates, and all banks paid the maximum. † Banks compete for funds only by differentiating the quality of service and paying implicit interest. † Primary strategy: office and branches

From 1961 on ▣1961：Citibank,CD Market rate fell below the ceiling. Other market rate instruments emerged. Today,virtually all bank liabilities are free of regulatory restrictions on allowable rates, maturities,and minimum denominations. ■ Banks can offer any deposit product. ■ Price competition is the dominant consideration. 爸封强的黄香+孝

From 1961 on From 1961 on † 1961: Citibank, CD † Market rate fell below the ceiling. † Other market rate instruments emerged. † Today, virtually all bank liabilities are free of regulatory restrictions on allowable rates, maturities, and minimum denominations. „ Banks can offer any deposit product. „ Price competition is the dominant consideration

Problems created by the freedom Customers have become much more rate conscious:interest elastic. Customers prefer shorter-term deposits strongly:lower interest rate risk. Liabilities become more rate sensitive Pricing assets becomes more difficult 猫1竹對+手

Problems created by the Problems created by the freedom freedom † Customers have become much more rate conscious: interest elastic. † Customers prefer shorter-term deposits strongly: lower interest rate risk. „ Liabilities become more rate sensitive „ Pricing assets becomes more difficult

Recent trends For all banks (compared with 1992): Fewer total deposits,transaction accounts,and core retail deposits More time deposits (CDs)and equity. ▣Large banks: Fewer transactions accounts,large time deposits and equity More MMDAs,foreign deposits,and other borrowings 爸封强的黄香+孝

Recent trends Recent trends † For all banks (compared with 1992): „ Fewer total deposits, transaction accounts, and core retail deposits „ More time deposits (CDs) and equity. † Large banks: „ Fewer transactions accounts, large time deposits and equity „ More MMDAs, foreign deposits, and other borrowings

Core deposits They are stable deposits that customers are less likely to move when interest rates on competing investments rise. Not rate sensitive as large-denomination purchased (volatile)liabilities. Influenced more by location,availability, price of services. For large banks,core deposits/total assets:516)426(from1992to2001) 料酥价贸易大孝

Core deposits Core deposits † They are stable deposits that customers are less likely to move when interest rates on competing investments rise. „ Not rate sensitive as large-denomination purchased (volatile) liabilities. „ Influenced more by location, availability, price of services. „ For large banks, core deposits/total assets: 51% Î42% (from 1992 to 2001)

Volatile liabilities Purchased funds from rate-sensitive investors They will move their funds If other institutions pay higher rates If it is rumored that the bank has financial difficulties With more such liabilities (34%v.s.15%), larger banks are paying market rates on a greater proportion,with less customer loyalty and thus greater liquidity risk. 猫行贺影小号

Volatile liabilities Volatile liabilities † Purchased funds from rate-sensitive investors † They will move their funds „ If other institutions pay higher rates „ If it is rumored that the bank has financial difficulties † With more such liabilities (34% v.s. 15%), larger banks are paying market rates on a greater proportion, with less customer loyalty and thus greater liquidity risk

Cost of funds Competitive pressures pushed the average cost of funds between small banks and large banks to be comparable. While small banks'overall costs of interest- bearing deposits was 69 basis points higher, they paid lower rates on transaction costs and on hot money sources. Small banks'overall cost of interest- bearing funds was 45 bp higher than large banks. 爸封强的黄香+孝

Cost of funds Cost of funds † Competitive pressures pushed the average cost of funds between small banks and large banks to be comparable. † While small banks’ overall costs of interest￾bearing deposits was 69 basis points higher, they paid lower rates on transaction costs and on hot money sources. † Small banks’ overall cost of interest￾bearing funds was 45 bp higher than large banks

Small denomination liabilities Under $100,000 (v.s.multiples of $1 million) Normally held by individual investors Not actively trade in the secondary market Transactions accounts ■ Demand deposits ■ Interest-checking Negotiable orders of withdrawal,NOWs Automatic transfers from savings,ATS Money market deposit accounts,MMDA 目 Banks differentiate between deposits in the number of checks permitted,minimum denomination required,and the interest paid. 行贺影小号

Small denomination liabilities Small denomination liabilities † Under $100,000 (v.s. multiples of $1 million) „ Normally held by individual investors „ Not actively trade in the secondary market. † Transactions accounts „ Demand deposits „ Interest-checking † Negotiable orders of withdrawal, NOWs † Automatic transfers from savings, ATS „ Money market deposit accounts, MMDA † Banks differentiate between deposits in the number of checks permitted, minimum denomination required, and the interest paid