金融機(jī)構(gòu)管理安東尼·桑德斯課后習(xí)題答案Word版

1/497ChapterOneWhyAreFinancialIntermediariesSpecial?ChapterOutlineIntroductionFinancialIntermediaries’SpecialnessInformationCostsLiquidityandPriceRiskOtherSpecialServicesOtherAspectsofSpecialnessTheTransmissionofMonetaryPolicyCreditAllocationIntergenerationalWealthTransfersorTimeIntermediationPaymentServicesDenominationIntermediationSpecialnessandRegulationSafetyandSoundnessRegulationMonetaryPolicyRegulationCreditAllocationRegulationConsumerProtectionRegulationInvestorProtectionRegulationEntryRegulationTheChangingDynamicsofSpecialnessTrendsintheUnitedStatesFutureTrendsGlobalIssuesSummarySolutionsforEnd-of-ChapterQuestionsandProblems:ChapterOne1. Identifyandbrieflyexplainthefiveriskscommontofinancialinstitutions.Defaultorcreditriskofassets,interestrateriskcausedbymaturitymismatchesbetweenassetsandliabilities,liabilitywithdrawalorliquidityrisk,underwritingrisk,andoperatingcostrisks.2. Explainhoweconomictransactionsbetweenhouseholdsaversoffundsandcorporateusers offundswouldoccurinaworldwithoutfinancialintermediaries(FIs).InaworldwithoutFIstheusersofcorporatefundsintheeconomywouldhavetoapproachdirectlythehouseholdsaversoffundsinordertosatisfytheirborrowingneeds.Thisprocesswouldbeextremelycostlybecauseoftheup-frontinformationcostsfacedbypotentiallenders.Costinefficiencieswouldarisewiththeidentificationofpotentialborrowers,thepoolingofsmallsavingsintoloansofsufficientsizetofinancecorporateactivities,andtheassessmentofriskandinvestmentopportunities.Moreover,lenderswouldhavetomonitortheactivitiesofborrowersovereachloan'slifespan.Thenetresultwouldbeanimperfectallocationofresourcesinaneconomy.3. Identifyandexplainthreeeconomicdisincentivesthatprobablywoulddampentheflowoffundsbetweenhouseholdsaversoffundsandcorporateusersoffundsinaneconomicworldwithoutfinancialintermediaries.Investorsgenerallyareaversetopurchasingsecuritiesdirectlybecauseof(a)monitoringcosts,(b)liquiditycosts,and(c)pricerisk.Monitoringtheactivitiesofborrowersrequiresextensivetime,expense,andexpertise.Asaresult,householdswouldprefertoleavethisactivitytoothers,andbydefinition,theresultinglackofmonitoringwouldincreasetheriskinessofinvestingincorporatedebtandequitymarkets.Thelong-termnatureofcorporateequityanddebtwouldlikelyeliminateatleastaportionofthosehouseholdswillingtolendmoney,asthepreferenceofmanyfornear-cashliquiditywoulddominatetheextrareturnswhichmaybeavailable.Third,thepriceriskoftransactionsonthesecondarymarketswouldincreasewithouttheinformationflowsandservicesgeneratedbyhighvolume.4. IdentifyandexplainthetwofunctionsinwhichFIsmayspecializethatenablethesmoothflowoffundsfromhouseholdsaverstocorporateusers.FIsserveasconduitsbetweenusersandsaversoffundsbyprovidingabrokeragefunctionandbyengagingintheassettransformationfunction.Thebrokeragefunctioncanbenefitbothsaversandusersoffundsandcanvaryaccordingtothefirm.FIsmayprovideonlytransactionservices,suchasdiscountbrokerages,ortheyalsomayofferadvisoryserviceswhichhelpreduceinformationcosts,suchasfull-linefirmslikeMerrillLynch.Theassettransformationfunctionisaccomplishedbyissuingtheirownsecurities,suchasdepositsandinsurancepoliciesthataremoreattractivetohouseholdsavers,andusingtheproceedstopurchasetheprimarysecuritiesofcorporations.Thus,FIstakeonthecostsassociatedwiththepurchaseofsecurities.5. InwhatsensearethefinancialclaimsofFIsconsideredsecondarysecurities,whilethefinancialclaimsofcommercialcorporationsareconsideredprimarysecurities?Howdoesthetransformationprocess,orintermediation,reducetherisk,oreconomicdisincentives,tothesavers?Thefundsraisedbythefinancialclaimsissuedbycommercialcorporationsareusedtoinvestinrealassets.Thesefinancialclaims,whichareconsideredprimarysecurities,arepurchasedbyFIswhosefinancialclaimsthereforeareconsideredsecondarysecurities.SaverswhoinvestinthefinancialclaimsofFIsareindirectlyinvestingintheprimarysecuritiesofcommercialcorporations.However,theinformationgatheringandevaluationexpenses,monitoringexpenses,liquiditycosts,andpriceriskofplacingtheinvestmentsdirectlywiththecommercialcorporationarereducedbecauseoftheefficienciesoftheFI.6. Explainhowfinancialinstitutionsactasdelegatedmonitors.Whatsecondarybenefitsoftenaccruetotheentirefinancialsystembecauseofthismonitoringprocess?Byputtingexcessfundsintofinancialinstitutions,individualinvestorsgivetotheFIstheresponsibilityofdecidingwhoshouldreceivethemoneyandofensuringthatthemoneyisutilizedproperlybytheborrower.InthissensethedepositorshavedelegatedtheFItoactasamonitorontheirbehalf.TheFIcancollectinformationmoreefficientlythanindividualinvestors.Further,theFIcanutilizethisinformationtocreatenewproducts,suchascommercialloans,thatcontinuallyupdatetheinformationpool.Thismorefrequentmonitoringprocesssendsimportantinformationalsignalstootherparticipantsinthemarket,aprocessthatreducesinformationimperfectionandasymmetrybetweentheultimatesourcesandusersoffundsintheeconomy.7. WhatarefivegeneralareasofFIspecialnessthatarecausedbyprovidingvariousservicestosectorsoftheeconomy?First,FIscollectandprocessinformationmoreefficientlythanindividualsavers.Second,FIsprovidesecondaryclaimstohouseholdsaverswhichoftenhavebetterliquiditycharacteristicsthanprimarysecuritiessuchasequitiesandbonds.Third,bydiversifyingtheassetbaseFIsprovidesecondarysecuritieswithlowerprice-riskconditionsthanprimarysecurities.Fourth,FIsprovideeconomiesofscaleintransactioncostsbecauseassetsarepurchasedinlargeramounts.Finally,FIsprovidematurityintermediationtotheeconomywhichallowstheintroductionofadditionaltypesofinvestmentcontracts,suchasmortgageloans,thatarefinancedwithshort-termdeposits.8. HowdoFIssolvetheinformationandrelatedagencycostswhenhouseholdsaversinvestdirectlyinsecuritiesissuedbycorporations?Whatareagencycosts?Agencycostsoccurwhenownersormanagerstakeactionsthatarenotinthebestinterestsoftheequityinvestororlender.Thesecoststypicallyresultfromthefailuretoadequatelymonitortheactivitiesoftheborrower.Ifnootherlenderperformsthesetasks,thelenderissubjecttoagencycostsasthefirmmaynotsatisfythecovenantsinthelendingagreement.BecausetheFIinveststhefundsofmanysmallsavers,theFIhasagreaterincentivetocollectinformationandmonitortheactivitiesoftheborrower.9. Whatoftenisthebenefittothelenders,borrowers,andfinancialmarketsingeneralofthesolutiontotheinformationproblemprovidedbythelargefinancialinstitutions?Onebenefittothesolutionprocessisthedevelopmentofnewsecondarysecuritiesthatallowevenfurtherimprovementsinthemonitoringprocess.Anexampleisthebankloanthatisrenewedmorequicklythanlong-termdebt.Therenewalprocessupdatesthefinancialandoperatinginformationofthefirmmorefrequently,therebyreducingtheneedforrestrictivebondcovenantsthatmaybedifficultandcostlytoimplement.10. HowdoFIsalleviatetheproblemofliquidityriskfacedbyinvestorswhowishtoinvestinthesecuritiesofcorporations? Liquidityriskoccurswhensaversarenotabletoselltheirsecuritiesondemand.Commercialbanks,forexample,offerdepositsthatcanbewithdrawnatanytime.Yetthebanksmakelong-termloansorinvestinilliquidassetsbecausetheyareabletodiversifytheirportfoliosandbettermonitortheperformanceoffirmsthathaveborrowedorissuedsecurities.Thusindividualinvestorsareabletorealizethebenefitsofinvestinginprimaryassetswithoutacceptingtheliquidityriskofdirectinvestment.11. Howdofinancialinstitutionshelpindividualsaversdiversifytheirportfoliorisks?Whichtypeoffinancialinstitutionisbestabletoachievethisgoal?Moneyplacedinanyfinancialinstitutionwillresultinaclaimonamorediversifiedportfolio.Bankslendmoneytomanydifferenttypesofcorporate,consumer,andgovernmentcustomers,andinsurancecompanieshaveinvestmentsinmanydifferenttypesofassets.Investmentinamutualfundmaygeneratethegreatestdiversificationbenefitbecauseofthefund’sinvestmentinawidearrayofstocksandfixedincomesecurities.12. Howcanfinancialinstitutionsinvestinhigh-riskassetswithfundingprovidedbylow-riskliabilitiesfromsavers?Diversificationofriskoccurswithinvestmentsinassetsthatarenotperfectlypositivelycorrelated.OneresultofextensivediversificationisthattheaverageriskoftheassetbaseofanFIwillbelessthantheaverageriskoftheindividualassetsinwhichithasinvested.Thusindividualinvestorsrealizesomeofthereturnsofhigh-riskassetswithoutacceptingthecorrespondingriskcharacteristics.13. Howcanindividualsaversusefinancialinstitutionstoreducethetransactioncostsofinvestinginfinancialassets?Bypoolingtheassetsofmanysmallinvestors,FIscangaineconomiesofscaleintransactioncosts.ThisbenefitoccurswhethertheFIislendingtoacorporateorretailcustomer,orpurchasingassetsinthemoneyandcapitalmarkets.Ineithercase,operatingactivitiesthataredesignedtodealinlargevolumestypicallyaremoreefficientthanthoseactivitiesdesignedforsmallvolumes.14. Whatismaturityintermediation?Whataresomeofthewaysinwhichtherisksofmaturityintermediationaremanagedbyfinancialintermediaries? Ifnetborrowersandnetlendershavedifferentoptimaltimehorizons,FIscanservicebothsectorsbymatchingtheirassetandliabilitymaturitiesthroughon-andoff-balancesheethedgingactivitiesandflexibleaccesstothefinancialmarkets.Forexample,theFIcanoffertherelativelyshort-termliabilitiesdesiredbyhouseholdsandalsosatisfythedemandforlong-termloanssuchashomemortgages.Byinvestinginaportfoliooflong-andshort-termassetsthathavevariable-andfixed-ratecomponents,theFIcanreducematurityriskexposurebyutilizingliabilitiesthathavesimilarvariable-andfixed-ratecharacteristics,orbyusingfutures,options,swaps,andotherderivativeproducts.15. Whatarefiveareasofinstitution-specificFIspecialness,andwhichtypesofinstitutionsaremostlikelytobetheserviceproviders?First,commercialbanksandotherdepositoryinstitutionsarekeyplayersforthetransmissionofmonetarypolicyfromthecentralbanktotherestoftheeconomy.Second,specificFIsoftenareidentifiedasthemajorsourceoffinanceforcertainsectorsoftheeconomy.Forexample,S&Lsandsavingsbankstraditionallyservethecreditneedsoftheresidentialrealestatemarket.Third,lifeinsuranceandpensionfundscommonlyareencouragedtoprovidemechanismstotransferwealthacrossgenerations.Fourth,depositoryinstitutionsefficientlyprovidepaymentservicestobenefittheeconomy.Finally,mutualfundsprovidedenominationintermediationbyallowingsmallinvestorstopurchasepiecesofassetswithlargeminimumsizessuchasnegotiableCDsandcommercialpaperissues.16. Howdodepositoryinstitutionssuchascommercialbanksassistintheimplementationandtransmissionofmonetarypolicy?TheFederalReserveBoardcaninvolvedirectlythecommercialbanksintheimplementationofmonetarypolicythroughchangesinthereserverequirementsandthediscountrate.TheopenmarketsaleandpurchaseofTreasurysecuritiesbytheFedinvolvesthebanksintheimplementationofmonetarypolicyinalessdirectmanner.17. Whatismeantbycreditallocationregulation?Whatsocialbenefitisthistypeofregulationintendedtoprovide?CreditallocationregulationreferstotherequirementfacedbyFIstolendtocertainsectorsoftheeconomy,whichareconsideredtobesociallyimportant.Thesemayincludehousingandfarming.Presumablytheprovisionofcredittomakehousesmoreaffordableorfarmsmoreviableleadstoamorestableandproductivesociety.18. Whichintermediariesbestfulfilltheintergenerationalwealthtransferfunction?Whatisthiswealthtransferprocess?Lifeinsuranceandpensionfundsoftenreceivespecialtaxationreliefandothersubsidiestoassistinthetransferofwealthfromonegenerationtoanother.Ineffect,thewealthtransferprocessallowstheaccumulationofwealthbyonegenerationtobetransferreddirectlytooneormoreyoungergenerationsbyestablishinglifeinsurancepoliciesandtrustprovisionsinpensionplans.Oftenthiswealthtransferprocessavoidsthefullmarginaltaxtreatmentthatadirectpaymentwouldincur.19. Whataretwoofthemostimportantpaymentservicesprovidedbyfinancialinstitutions?Towhatextentdotheseservicesefficientlyprovidebenefitstotheeconomy?Thetwomostimportantpaymentservicesarecheckclearingandwiretransferservices.Anybreakdowninthesesystemswouldproducegridlockinthepaymentsystemwithresultingharmfuleffectstotheeconomyatboththedomesticandpotentiallytheinternationallevel.20. Whatisdenominationintermediation?HowdoFIsassistinthisprocess?Denominationintermediationistheprocesswherebysmallinvestorsareabletopurchasepiecesofassetsthatnormallyaresoldonlyinlargedenominations.Individualsaversofteninvestsmallamountsinmutualfunds.ThemutualfundspoolthesesmallamountsandpurchasenegotiableCDswhichcanonlybesoldinminimumincrementsof$100,000,butwhichoftenaresoldinmilliondollarpackages.Similarly,commercialpaperoftenissoldonlyinminimumamountsof$250,000.Thereforesmallinvestorscanbenefitinthereturnsandlowriskwhichtheseassetstypicallyoffer.21. Whatisnegativeexternality?Inwhatwaysdotheexistenceofnegativeexternalitiesjustifytheextraregulatoryattentionreceivedbyfinancialinstitutions?Anegativeexternalityreferstotheactionbyonepartythathasanadverseaffectonsomethirdpartywhoisnotpartoftheoriginaltransaction.Forexample,inanindustrialsetting,smokefromafactorythatlowerssurroundingpropertyvaluesmaybeviewedasanegativeexternality.Forfinancialinstitutions,oneconcernisthecontagioneffectthatcanarisewhenthefailureofoneFIcancastdoubtonthesolvencyofotherinstitutionsinthatindustry.22. Iffinancialmarketsoperatedperfectlyandcostlessly,wouldtherebeaneedforfinancialintermediaries? Toacertainextent,financialintermediationexistsbecauseoffinancialmarketimperfections.Ifinformationisavailablecostlesslytoallparticipants,saverswouldnotneedintermediariestoactaseithertheirbrokersortheirdelegatedmonitors.However,iftherearesocialbenefitstointermediation,suchasthetransmissionofmonetarypolicyorcreditallocation,thenFIswouldexistevenintheabsenceoffinancialmarketimperfections.23. Whatismortgageredlining?Mortgageredliningoccurswhenalenderspecificallydefinesageographicareainwhichitrefusestomakeanyloans.Thetermarosebecauseoftheareaoftenwasoutlinedonamapwitharedpencil.24. WhyareFIsamongthemostregulatedsectorsintheworld?Whenisnetregulatoryburdenpositive?FIsarerequiredtoenhancetheefficientoperationoftheeconomy.Successfulfinancialintermediariesprovidesourcesoffinancingthatfundeconomicgrowthopportunitythatultimatelyraisestheoveralllevelofeconomicactivity.Moreover,successfulfinancialintermediariesprovidetransactionservicestotheeconomythatfacilitatetradeandwealthaccumulation.Conversely,distressedFIscreatenegativeexternalitiesfortheentireeconomy.Thatis,theadverseimpactofanFIfailureisgreaterthanjustthelosstoshareholdersandotherprivateclaimantsontheFI'sassets.Forexample,thelocalmarketsuffersifanFIfailsandotherFIsalsomaybethrownintofinancialdistressbyacontagioneffect.Therefore,sincesomeofthecostsofthefailureofanFIaregenerallybornebysocietyatlarge,thegovernmentintervenesinthemanagementoftheseinstitutionstoprotectsociety'sinterests.Thisinterventiontakestheformofregulation.However,theneedforregulationtominimizesocialcostsmayimposeprivatecoststothefirmsthatwouldnotexistwithoutregulation.Thisadditionalprivatecostisdefinedasanetregulatoryburden.Examplesincludethecostofholdingexcesscapitaland/orexcessreservesandtheextracostsofprovidinginformation.Althoughtheymaybesociallybeneficial,thesecostsaddtoprivateoperatingcosts.Totheextentthattheseadditionalcostshelptoavoidnegativeexternalitiesandtoensurethesmoothandefficientoperationoftheeconomy,thenetregulatoryburdenispositive.25. WhatformsofprotectionandregulationdoregulatorsofFIsimposetoensuretheirsafetyandsoundness?RegulatorshaveissuedseveralguidelinestoinsurethesafetyandsoundnessofFIs: a. FIsarerequiredtodiversifytheirassets.Forexample,bankscannotlendmorethan10percentoftheirequitytoasingleborrower.b. FIsarerequiredtomaintainminimumamountsofcapitaltocushionanyunexpectedlosses.Inthecaseofbanks,theBaslestandardsrequireaminimumcoreandsupplementarycapitalof8percentoftheirrisk-adjustedassets. c. RegulatorshavesetupguarantyfundssuchasBIFforcommercialbanks,SIPCforsecuritiesfirms,andstateguarantyfundsforinsurancefirmstoprotectindividualinvestors. d. Regulatorsalsoengageinperiodicmonitoringandsurveillance,suchason-siteexaminations,andrequestperiodicinformationfromtheFIs.26. Inthetransmissionofmonetarypolicy,whatisthedifferencebetweeninsidemoneyandoutsidemoney?HowdoestheFederalReserveBoardtrytocontroltheamountofinsidemoney?Howcanthisregulatorypositioncreateacostforthedepositoryfinancialinstitutions?OutsidemoneyisthatpartofthemoneysupplydirectlyproducedandcontrolledbytheFed,forexample,coinsandcurrency.InsidemoneyreferstobankdepositsnotdirectlycontrolledbytheFed.TheFedcaninfluencethisamountofmoneybyreserverequirementanddiscountratepolicies.IncaseswherethelevelofrequiredreservesexceedsthelevelconsideredoptimalbytheFI,theinabilitytousetheexcessreservestogeneraterevenuemaybeconsideredataxorcostofprovidingintermediation.27. Whataresomeexamplesofcreditallocationregulation?Howcanthisattempttocreatesocialbenefitscreatecoststotheprivateinstitution?Thequalifiedthriftlendertest(QTL)requiresthriftstohold65percentoftheirassetsinresidentialmortgage-relatedassetstoretainthethriftcharter.Somestateshaveenactedusurylawsthatplacemaximumrestrictionsontheinterestratesthatcanbechargedonmortgagesand/orconsumerloans.ThesetypesofrestrictionsoftencreateadditionaloperatingcoststotheFIandalmostcertainlyreducetheamountofprofitthatcouldberealizedwithoutsuchregulation.28. WhatisthepurposeoftheHomeMortgageDisclosureAct?Whatarethesocialbenefitsdesiredfromthelegislation?Howdoestheimplementationofthislegislationcreateanetregulatoryburdenonfinancialinstitutions?TheHMDAwaspassedbyCongresstopreventdiscriminationinmortgagelending.Thesocialbenefitistoensurethateveryonewhoqualifiesfinanciallyisprovidedtheopportunitytopurchaseahouseshouldtheysodesire.Theregulatoryburdenhasbeentorequireawrittenstatementindicatingthereasonswhycreditwasorwasnotgranted.Since1990,thefederalregulatorshaveexaminedmillionsofmortgagetransactionsfrommorethan7,700institutionseachcalendarquarter.29. Whatlegislationhasbeenpassedspecificallytoprotectinvestorswhouseinvestmentbanksdirectlyorindirectlytopurchasesecurities?Givesomeexamplesofthetypesofabusesforwhichprotectionisprovided.TheSecuritiesActsof1933and1934andtheInvestmentCompanyActof1940werepassedbyCongresstoprotectinvestorsagainstpossibleabusessuchasinsidertrading,lackofdisclosure,outrightmalfeasance,andbreachoffiduciaryresponsibilities.30. Howdoregulationsregardingbarrierstoentryandthescopeofpermittedactivitiesaffectthechartervalueoffinancialinstitutions?Theprofitabilityofexistingfirmswillbeincreasedasthedirectandindirectcostsofestablishingcompetitionincrease.Directcostsincludetheactualphysicalandfinancialcostsofestablishingabusiness.InthecaseofFIs,thefinancialcostsincluderaisingthenecessaryminimumcapitaltoreceiveacharter.Indirectcostsincludepermissionfromregulatoryauthoritiestoreceiveacharter.AgaininthecaseofFIsthiscostinvolvesacceptableleadershiptotheregulators.Asthesebarrierstoentryarestronger,thechartervalueforexistingfirmswillbehigher.31. Whatreasonshavebeengivenforthegrowthofinvestmentcompaniesattheexpenseof“traditional”banksandinsurancecompanies?Therecentgrowthofinvestmentcompaniescanbeattributedtotwomajorfactors:a. Investorshavedemandedincreasedaccesstodirectsecuritiesmarkets.Investmentcompaniesandpensionfundsallowinvestorstotakepositionsindirectsecuritiesmarketswhilestillobtainingtheriskdiversification,monitoring,andtransactionalefficiencybenefitsoffinancialintermediation.Someexpertswouldarguethatthisgrowthistheresultofincreasedsophisticationonthepartofinvestors;otherswouldarguethattheabilitytousethesemarketshascausedtheincreasedinvestorawareness.Thegrowthintheseassetsisinarguable.b. Recentepisodesoffinancialdistressinboththebankingandinsuranceindustrieshaveledtoanincreaseinregulationandgovernmentaloversight,therebyincreasingthenetregulatoryburdenof“traditional”companies.Assuch,thecostsofintermediationhaveincreased,whichincreasesthecostofprovidingservicestocustomers.32. Whataresomeofthemethodswhichbankingorganizationshaveemployedtoreducethenetregulatoryburden?Whathasbeentheeffectonprofitability?Throughregulatorychanges,FIshavebegunchangingthemixofbusinessproductsofferedtoindividualusersandprovidersoffunds.Forexample,bankshaveacquiredmutualfunds,haveexpandedtheirassetandpensionfundmanagementbusinesses,andhaveincreasedthesecurityunderwritingactivities.Inaddition,legislationthatallowsbankstoestablishbranchesanywhereintheUnitedStateshascausedawaveofmergers.Asthesizeofbankshasgrown,anexpansionofpossibleproductofferingshascreatedthepotentialforlowerservicecosts.Finally,theemphasisinrecentyearshasbeenonproductsthatgenerateincreasesinfeeincome,andtheentirebankingindustryhasbenefitedfromincreasedprofitabilityinrecentyears.33. Whatcharacteristicsoffinancialproductsarenecessaryforfinancialmarketstobecomeefficientalternativestofinancialintermediaries?Canyougivesomeexamplesofthecommoditizationofproductswhichwerepreviouslythesolepropertyoffinancialinstitutions?FinancialmarketscanreplaceFIsinthedeliveryofproductsthat(1)havestandardizedterms,(2)servealargenumberofcustomers,and(3)aresufficientlyunderstoodforinvestorstobecomfortableinassessingtheirprices.Whenthesethreecharacteristicsaremet,theproductsoftencanbetreatedascommodities.Oneexampleofthisprocessisthemigrationofover-the-counteroptionstothepubliclytradedoptionmarketsastradingvolumegrowsandtradingtermsbecomestandardized.34. InwhatwayhasRegulation144AoftheSecuritiesandExchangeCommissionprovidedanincentivetotheprocessoffinancialdisintermediation?Changingtechnologyandareductionininformationcostsarerapidlychangingthenatureoffinancialtransactions,enablingsaverstoaccessissuersofsecuritiesdirectly.Section144AoftheSECisarecentregulatorychangethatwillfacilitatetheprocessofdisintermediation.Theprivateplacementofbondsandequitiesdirectlybytheissuingfirmisanexampleofaproductthathistoricallyhasbeenthedomainofinvestmentbankers.Althoughhistoricallyprivateplacementassetshadrestrictionsagainsttrading,regulatorshavegivenpermissionfortheseassetstotradeamonglargeinvestorswhohaveassetsofmorethan$100million.Asthemarketgrows,thisminimumassetsizerestrictionmaybereduced.ChapterTwoTheFinancialServicesIndustry:DepositoryInstitutionsChapterOutlineIntroductionCommercialBanksSize,Structure,andCompositionoftheIndustryBalanceSheetandRecentTrendsOtherFee-GeneratingActivitiesRegulationIndustryPerformanceSavingsInstitutionsSavingsAssociations(SAs)SavingsBanksRecentPerformanceofSavingsAssociationsandSavingsBanksCreditUnionsSize,Structure,andCompositionoftheIndustryandRecentTrendsBalanceSheetsRegulationIndustryPerformanceGlobalIssues:Japan,China,andGermanySummaryAppendix2A:FinancialStatementAnalysisUsingaReturnonEquity(ROE)FrameworkAppendix2B:DepositoryInstitutionsandTheirRegulatorsAppendix3B:TechnologyinCommercialBankingSolutionsforEnd-of-ChapterQuestionsandProblems:ChapterTwoWhatarethedifferencesbetweencommunitybanks,regionalbanks,andmoney-centerbanks?Contrastthebusinessactivities,location,andmarketsofeachofthesebankgroups.Communitybankstypicallyhaveassetsunder$1billionandserveconsumerandsmallbusinesscustomersinlocalmarkets.In2003,94.5percentofthebanksintheUnitedStateswereclassifiedascommunitybanks.However,thesebanksheldonly14.6percentoftheassetsofthebankingindustry.Incomparisonwithregionalandmoney-centerbanks,communitybankstypicallyholdalargerpercentageofassetsinconsumerandrealestateloansandasmallerpercentageofassetsincommercialandindustrialloans.Thesebanksalsorelymoreheavilyonlocaldepositsandlessheavilyonborrowedandinternatio