Review: Glass-Stegall Act

Submitted By ellenkim718
Words: 586
Pages: 3
Open Document
FIN 431—January 10, 2013: Lecture #1 (CHAPTER 13)

* Glass-Stegall Act: segregated the ability of banks for investing and such. * Merrill Lynch and BOA * Commercial bank and investment bank combined * Moral Hazard: doing something bad again (we’ve been through it already) * Son at police station example * Bankers needing bailout continuously * Michael Milken reference * Banks too big to fail * Screw up the economy, so they have to bail them out * But by combining big financial institutions, now they’re even bigger to fail. * Wachovia bank/Wells Fargo & Merrill Lynch/BOA example * Why do you have to follow their orders/agree? * You don’t HAVE to, but they can make life miserable for you * IRS audits, etc. * Audits to make sure you’re complying with things, not just because they think you did something wrong. * Uses of funds (assets) = Sources of funds (Liabilities + Capital) * Uses: Cash Assets, Investments, Loans & Leases, Other assets * Sources: Deposit Liabilities, Non-deposit liabilities, Capital Accounts * If you want to start a bank, you need capital accounts, you need money to start with * Rigorous process with the Fed to start a bank * Very highly leveraged; 9:1 debt to equity ratio * Start with capital, solicit depositors (put your money in our bank), lend it out and make loans. * Giving you less than 1/10th of 1% for putting money in their bank but lends it out at 5%. * Invest your money; commercial banks were supposed to take your money and lending it to people, not invest * Investing it in derivatives * Two major sources we will concentrate on are deposits and capital accounts * FDIC –Federal Deposit Insurance Corporation * 1930’s—bank runs during the depression * Was not set up to withstand what happened the past couple years * Banks have the opportunity to invest in different places * Home loans—problems * Deposits are money that banks are borrowing –liabilities * The more you get entrenched in a bank, it’ll be harder to move * Long process to change banks * Capital in relation to liabilities –90% of their capital footing is in liabilities * Banks would never lend to people who are 90% leveraged * 67% are the deposits in there * This is all 2006 data; before the economy went to shit * Major portion of their
Show More

Related Documents: Review: Glass-Stegall Act

Chapter 12 13 2 Essay example

salaries payable 16 000 ($24 000 = $30 000 x 8/10) (b) When the amount is ultimately paid to employees on 2 July, the entry would be: 2 July Dr Wages and salaries expense 6 000 Dr Wages and salaries payable 16 000 Cr PAYG tax payable 2 000 Cr Cash at bank 20 000 $6000 represents two days salary, which would be included as an expense of the new financial period. The employees would receive the net amount after deduction of the PAYE tax, that is, $30 000 less $10 000. This entry assumes that no reversing…

Words 1315 - Pages 6

Business finance Essay

sapphire mill and over all sector…8 17) Trend analysis of the Profitability ratio of the sapphire mill and Over all sector……………………………………………………………...…10 18) Trend analysis of the Leverage ratio of the sapphire mill and over all sector.11 19) Capital management…………………………………………………………..12 20) Receivable management………………………………………………………12 21) Cash management……………………………………………………………..13 Financial Ratio or Accounting ratio:…

Words 2240 - Pages 9

Essay on Banking and Money

My brother is working at an investment bank. The bank name is ZHESHANG SECURITIES. Customers can make transaction in its system platform such as bonds, stocks and futures. When customers make a transaction in its system, the bank receives a service fee from the process of transaction. A part of fee is prize and salary for staff and the rest of fee is operation cost for development of facility. However, customers cannot store their money in investment bank. So, how do customers use their money to…

Words 381 - Pages 2

Accounting: Accounts Receivable and Service Revenue Essay

business Cash at bank 900000 Josie, Capital 900000 2）2 Apr. 2011 Paid ＄20000 cash for building Building 20000 Cash at bank 20000 3）2 Apr. 2011 Purchased equipment for $10000 cash Equipment 10000 Cash at bank 10000 4) 2 Apr. 2011 Costing ＄2500 cash for furniture Furniture 2500 Cash at bank 2500 5) 2 Apr. 2011 Paid $20000 cash for land Land 20000 Cash at bank 20000 6) 3 Apr. 2011…

Words 584 - Pages 3

Essay on Banking: Bank and Investment Banks

bankers were money changers or money lenders. The first banks were established in the U.S. were state banks. The banking system in the United States today is made up of many banks operating at different levels. All these banks, however, must operate under the jurisdsiction and rules of the Federal Reserve System, the centerpiece of American banking. Commercial Banks make up the largest banking group in the U.S. At one time, commercial banks could easily b distinguished from other financial instituition…

Words 845 - Pages 4

Balance Sheet and Total Capital Ratio Essay

primary line items within Citigroup’s balance sheet and income statement? Balance Sheet Asset Cash and due from banks Deposits with banks Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Investments Total loans, net Liability Total deposits Short-term borrowings Long-term debt Equity Common stock Additional paid-in capital Retained earnings Income Statement Income Total revenue Total provisions Total operating expenses Net income…

Words 995 - Pages 4

Lecture notes Essay

Choice of Business Structures. The term "capital market" does not mean the same as "stock market". A capital market is any market in which financial assets are traded. Stocks are a special kind of financial assets - they are shares of ownership in a company. So a stock market is one kind of capital market, but there are other capital markets in which other types of financial assets are traded, such as bond markets. There is a market in which bank accounts are created, but it is not an active liquid…

Words 1203 - Pages 5

Essay on Mgec61 Note - Chapter 13

the flows of capital) and exchange rate overshooting – chapters 14 & 15 3) Purchasing power parity and the exchange rate in the long run (how exchange rate is determined by the flows of goods and the determinants of exchange rate in the long run) – chapter 16 4) The DD-AA model (the model that explains how exchange rate and output are determined in…

Words 1028 - Pages 5

Essay on Invoice and Purchases Ledger Control

entries in the subsidiary (sales) ledger? Select your account name from the following list: Bradley Delights, Burgess Wholesale, Kelly and Co, Purchases, Purchases ledger control, Purchases returns, Sales, Sales ledger control, Sales returns, VAT, West and Webb Account name | Amount £ | Debit | Credit | | | | | | | | | | | | | | | | | (b) What will be the entries in the main ledger? Select your account name from the following list: Purchases ledger control,…

Words 2578 - Pages 11

Types Of Balance Sheet

risk and does not have the ability to pay debt to its creditor, thus it is not financially sound. b. Balance sheet enables us to know if a company pays its bills on time by looking at the working capital. It is calculated by subtracting current liabilities from current assets. If the working capital is low or negative then it indicates of short tem financial difficulties. Moreover by lookin at solvency and debt equity ratio also enable us to identify if a company can pay its bill on time. Solvency…

Words 642 - Pages 3