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FIN 3120 (4)
Chapter 1-2

FIN 3120 Chapter 1-2: CH 1,2 Overview of the Changing Financial-Services Sector
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Department
Finance
Course
FIN 3120
Professor
Chi Hung Leung
Semester
Spring

Description
CH 1: An Overview of the Changing FinancialServices Sector Economic Functions of a Bank: o Financial intermediation being the intermediary between a surplus and deficit unit o Netting and settlement of payments o Money creation in a fractionalreserve banking system Money= currency + demand deposit Services of a Bank: o Lending o Deposit taking o Trust o Investment banking o Insurance protection o Financial planning o Advice for mergingacquiringdisposing companies Investment banking will not take any credit risks, merchant banking will Moneycenter banks* o Industry leaders o Cover whole regions, nations, and continents o Offer the widest possible menu of financial services o Acquire smaller businesses o Face tough global competition Community banks (assets less than 10 billion) o Much smaller o Service local communities and towns o Offer a narrower, but often more personalized, menu of financial services Legal Basis for Banking o A bank as any institution that could qualify for deposit insurance administered by the Federal Deposit Insurance Corporation (FDIC) Chapter 2: Banking Regulation The Impact of Regulation o Financialservice managers will search to find ways around new rules to reduce costs and allow innovation to occur Legislation Bank Regulations: o National Security and Bank Acts (18631864): Created new division of the treasury, the office of Controller of the Currency o The Federal Reserve Act (1913): Created the Federal Reserve System Gave the fed the authority to act as the lender of last resort o The Banking Act of 1933 (GlassSteagall) Separated investment banking and commercial banking Created the FDIC and FOMC(part of the Fed, decides the Monetary policies, meets 8 times a year) Passed during the Great Depression, banks took on too much risk
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