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Chapter 19: Learning Objectives

Chapter 19: Learning Objectives. OTHER DEPOSITORY INSITUTIONS & FINANCIAL INSTITUTIONS What are “Near-Banks”? A Brief History of “Near-Banks” Types: Trusts, MLC, and Credit Unions Other depository institutions Performance. Learning Objectives (CONT’D).

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Chapter 19: Learning Objectives

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  1. Chapter 19:Learning Objectives • OTHER DEPOSITORY INSITUTIONS & FINANCIAL INSTITUTIONS • What are “Near-Banks”? • A Brief History of “Near-Banks” • Types: • Trusts, MLC, and Credit Unions • Other depository institutions • Performance

  2. Learning Objectives (CONT’D) • Other Financial Institutions: What Are They? • Insurance Industry: General Characteristics • Mutual Funds & Pension Funds: General Overview • Government Programs & Incentives

  3. What are the Near Banks? • Trust & Mortgage Loan Cos. • Credit Unions and Caisses Populaires • Provincially based depository institutions

  4. Trust & Mortgage Loan Cos. • Offer typical banking type services • Estate, Trust, and Agency function remains most important distinguishing characteristic vis-à-vis Chartered banks • A bit of history: filling the gap left by the Chartered banks • What do their operations look like?

  5. Trusts & Mtge Loan Companies: Asset & Liabilities Composition in 1990&2004

  6. Trust & Mortgage Loans Cos

  7. Credit Unions & Caisses Populaires • Primarily savings type institutions offering a “smorgasboard” of financial and non-financial services • Depositors are also the shareholders • A little history: the need to generate a pool of savings in a community • Big changes are underway to merge with other institutions and to bring in non depositing shareholders

  8. Credit Unions: Asset & Liabilities Composition in 1990 & 2004

  9. Credit Unions: Balance Sheet 2004

  10. Other Financial Institutions • Financial and Leasing Corporations • Investment Dealers • Government Financial Institutions • Insurance Companies • Mutual Funds • Pension Funds

  11. Sales & Finance Cos.

  12. Investment Dealers • Underwrite securities • Also act as primary market dealers • Since the early 1990s have been largely bought out by Chartered banks • Serious regulatory issues have affected the industry in the 1990s

  13. Government Financial Institutions • In theory, fill in gaps left behind by the private market either because of risk or low profitability • Examples include: CMHC, FBDB, EDC, FCC

  14. Insurance Companies • Most are federally regulated • Separate Acts regulate domestic vs. foreign based companies • There are 2 types of cos.: Joint-stock (shareholder owned) & mutual cos (policy holder owned). • Assets must be sufficient to cover liabilities • segregated fund component acts like an intermediary by offering RRIFs • They have their own “protection” fund that acts like deposit insurance • Demutualization is the dominant current trend

  15. The Largest Insurance Cos.

  16. Investment Funds & Cos • Mutual Funds • Closed-end (fixed no. of shares) • Open-end (no share limit) • usually specialize (e.g., bonds, mortgages, etc.)

  17. Mutual Funds and Market Timing • How much is your mutual fund worth? Depends on the time/date used in the calculation of Price X No. of shares • If the price used is at 4pm Eastern time then the price is “stale” by 4:01pm! • Stock/bond trading is a 24 hour round the world phenomenon • If prices rise in North America they tend to rise in Asia where its later. There is, therefore, an arbitrage opportunity. • How would the investor know that a shares sold between time t and t+ would earn a profit without their knowledge? • Estimates of the returns from market timing? 35 to 70% annually • Not everyone agrees with these estimates + there is also a risk of loss from the same phenomenon!

  18. Investment Funds & Cos • Pension funds • Who operates them? Public vs. Private • How are funds built up? Contributory vs. compulsory • Who manages them? Trusteeship • How are benefits paid? Defined (size & fund return) vs flat benefit (tenure)

  19. The CPP in 2004

  20. Summary • There exist a large variety of public and private institutions which function as intermediaries but are not necessarily deposit-taking institutions • Public institutions attempt to fill a perceived void left by the private market either because risks are too high or anticipated profits too low • Other financial institutions include leasing cos., investment dealers, insurance companies, government financial institutions, mutual and pension funds • Other financial institutions have been termed “near banks” since they offer typical banking type services as well as other financial and non-financial services • The most important such institutions are the Trust&Mortgage Loan Cos. and Credit Unions • They emerged to fill the financial gap left by the Chartered banks but competition and technology are forcing them to change into institutions largely indistinguishable from the Chartered banks

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