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Other Institutions

Other Institutions. Economics 71a Spring 2007 Mayo, Chapter 4 Lecture notes 2.4. Institutions. Commercial banks Investment managers Mutual funds Pension funds Hedge funds Money market mutual funds Insurance companies Others. Commercial Banks. Consumers Deposits/savings

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Other Institutions

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  1. Other Institutions Economics 71a Spring 2007 Mayo, Chapter 4 Lecture notes 2.4

  2. Institutions • Commercial banks • Investment managers • Mutual funds • Pension funds • Hedge funds • Money market mutual funds • Insurance companies • Others

  3. Commercial Banks • Consumers • Deposits/savings • Lending/transactions • Consumer loans • Home mortgages • Checking accounts • Credit cards • Debit cards • Foreign exchange • Brokerage (recent)

  4. Commercial Banks • Firms • Cash management • Lines of credit • Loan of varying magnitude • Similar to credit card • Bank loans (term loans)

  5. Commercial Banks • Intermediary roles • Between lenders and borrowers • Repackaging financial products • Regulatory environment • Key aspect of monetary policy • Federal Deposit Insurance Corporation (FDIC) • Federal Reserve System

  6. Related Institutions • Thrifts (S&L’s) • Credit unions

  7. Bank Regulations • Reserve requirements • Deposits with specific banks • Cash • Deposit insurance/FDIC • $100,000 per account limit • Bank failures and bank runs

  8. Bank/Investment Bank Separation • Banks versus Investment Banks • The Glass-Steagall act (1933) • Repealed 1999 • Now separation is not required • Example: • Citigroup

  9. Investment Managers • Mutual funds • Pension funds • Hedge funds

  10. Mutual Funds • Function • Consumer investments -> Firms • Types • Stock (invest in stock market portfolios) • Money market (short term lending to firms) • Bond • Real Estate

  11. Mutual Funds • Allow consumers to better diversify • Gather and process investment information • Major industry in Boston

  12. Pension Funds • Manage/invest employee savings/pension plans • Similar in spirit to mutual funds • Hired by employer

  13. Retirement Systems • Defined benefit • Contributions to employer • Receive formula at retirement • Do not control assets • Defined contribution • Contributions made to employees own account • Receive lump sum at retirement • Employee controls assets • Transferable/increasing

  14. Hedge Funds • Large investors • Less regulation • Broader strategies • Derivatives • Short sales • More risk?? • Growing fast

  15. Money Market Funds • Purchase only low risk securities • Government bonds • Treasury bills, Treasury bonds • Tax anticipation notes • Short term corporate debt • Commercial paper • International low risk securities

  16. Insurance Companies • Insure individual and corporate risks • Receive payments (insurance premia) • Payout for losses • New issues • Trading insurance policies • Derivatives • High tech risk management

  17. Others • Information and software services • Bloomberg • Quicken • Microsoft • Yahoo • Google

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