What are four major sources of funds for banks? What alternatives does a bank have if it needs...

Question

What are four major sources of funds for banks? What alternatives does a bank have if it needs temporary funds? What is the most common reason that banks issue bonds?

4. How does a money market deposit account differ from other bank sources of funds?

5. Define federal funds, federal funds market, and federal funds rate. Who sets the federal funds rate? Why is the federal funds market more active on Wednesdays?

6. Explain how the federal funds market facilitates bank operations.

7. Describe the process of borrowing at the Federal Reserve. What rate is charged, and who set it? Why do banks commonly borrow in the federal funds market rather than through the Federal Reserve?

8. Dow does the yield on a repurchase agreement differ from a loan in the federal funds market? Why?

11. Explain the dilemma faced by banks when determining the optimal amount of capital to hold. A bank’s capital is less than 10% of its assets. How do you think this percentage would compare to that of manufacturing corporations? How would you explain this difference?

13. Explain how some mortgage operation by some commercial banks (along with other financial institutions) played a major role in instigating the credit crisis.

Chapter 18

2. Provide examples of off balance sheet activities. Why are regulators concerned about them?

3. Explain why the moral hazard problems received problem received so much attention during the credit crises.

4. What led to the establishment of FDIC insurance?

5. Briefly describe the Glass-Steagall Act. Then explain how the related regulation have changed.

6. Describe the main provisions of the DIDMCA that relate to deregulation.

7. Explain how the CAMELS rating are used.

9. Explain how the value at risk (VaR) method can be used to determine whether a bank has adequate capital.

15. Why are bank regulators more concerned about a large bank failure than a small bank failure?

16. Describe the Financial Services Modernization Act of 1999. Explain how it affected commercial bank operation and changed the competitive landscape among financial institutions.

17. Explain how the Sarbanes-Oxley Act improved the transparency of banks. Why might the act have a negative impact on some banks?

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Robert · Accepted Answer

Running Head: Analysis of Financial aspects of Banks
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Chapter 17
Question-2
What are four major sources of funds for banks? What alternatives does a bank have if it needs temporary funds? What is the most common reason that banks issue bonds?
Solution-
The four major sources of funds for banks are as follows-
1. Deposits of transactions
2. Deposits of savings
3. Fixed or Time Deposits
4. Money Market account of deposit
Sources of temporary funds include:
1. Repo Rates
2. Federal funds market
3.  Discount window 
4. Borrowings of the Euro dollar 
For buying the fixed assets bank can issue the bonds. 
Question-4
How does a money market deposit account differ from other bank sources of funds?
Solution-
The money market deposit account is different from the conventional time deposits because there is not specified maturity. Also checks are written are limited under these types of accounts. 
Question-5
Define federal funds, federal funds market, and federal funds rate. Who sets the federal funds rate? Why is the federal funds market more active on Wednesdays?
Solution-
The federal funds are always loan to the market related to federal funds market from the one bank to another bank, also the rate of interest known as the federal funds rate. This rate is not set by the any individual also federal funds rate calculated by the market. Because of changing supply and demand conditions the federal funds rate change regularly.
Question-6
Explain how the federal funds market facilitates bank operations.
Solution-
For accommodation the short term needs of liquidity of the financial institutions the federal funds market allows depository institutions. If the bank is required short term funds then they must borrow from the market of federal funds for making up the difference.
Question-7
Describe the process of borrowing at the Federal Reserve. What rate is charged, and who set it? Why do banks commonly borrow in the federal funds market rather than through the Federal Reserve?
Solution-
If there is any borrowing from the Federal Reserve then for the same bank needs a approval of loan from Fed's.  If the loan of the banks gets approved then Fed loaned out money for the bank but bank not allows opening their short term funds window for the discount window's loan. The rate is charged on the loan is primary credit lending rate which is set by the Federal Reserve. Mostly bank is borrowed from the federal funds market because the primary credit lending rate is more than the rates of federal funds.

What are four major sources of funds for banks? What alternatives does a bank have if it needs temporary funds? What is the most common reason that banks issue bonds? 4. How does a money market...

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