1 / 11

Chapter

Chapter. 11. The Investment Function in Banking. The purpose of this chapter is to discover the types of securities that banks acquire for their investment portfolio and to explore the factors that a bank manager should consider in determining what securities a bank should buy or sell.

pia
Download Presentation

Chapter

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 11 The Investment Function in Banking The purpose of this chapter is to discover the types of securities that banks acquire for their investment portfolio and to explore the factors that a bank manager should consider in determining what securities a bank should buy or sell.

  2. Functions of a Bank’s Security Portfolio • Stabilize the Bank’s Income • Offset Credit Risk • Provide Geographic Diversification • Provide Backup Source of Liquidity • Reduce Tax Exposure • Serve as Collateral • Hedge Against Interest Rate Risk • Provide Flexibility • Dress Up a Bank’s Balance Sheet

  3. Money Market Instruments Used by a Bank • Treasury Bills • Short-Term Treasury Notes and Bonds • Federal Agency Securities • Certificates of Deposit • Eurocurrency Deposits • Banker’s Acceptances • Commercial Paper • Short-Term Municipal Obligations

  4. Capital Market Instruments Used by a Bank • Treasury Notes and Bonds Over One Year to Maturity • Municipal Notes and Bonds • Corporate Notes and Bonds

  5. Other More Recent Investment Instruments • Structured Notes • Securitized Assets • Stripped Securities

  6. Investments Held By U.S. Banks

  7. Other Information About Investments By U.S. Banks

  8. Expected Rate of Return Tax Exposure Interest Rate Risk Credit Risk Business Risk Liquidity Risk Call Risk Prepayment Risk Inflation Risk Pledging Requirements Factors Affecting the Choice of Securities

  9. Investment Maturity Strategies • The Ladder or Spaced-Maturity Policy • The Front-End Load Maturity Policy • The Back-End Load Maturity Policy • The Barbell Strategy • The Rate Expectation Approach

  10. Maturity Management Tools • The Yield Curve • Picture of How Market Interest Rates Differ Across Differing Maturities • Constructed Most Easily with Treasury Securities • Provides Information About Under and Over Priced Securities • Provides Information About the Risk Return Trade-Off • Duration • Present Value Weighted Average Maturity of the Cash Flows • Can Be Used to Insulate the Securities From Interest Rate Changes

More Related