Banking

            
             Managing interest rate risk is more crutial at savings associations than banks because savings ass.
             Origins of the thrift and banking problems in recent past are due to mismanagement of interest rate, credit risks, deposits insurance, legislative and political causes.
             Before 89' savings institutions were primarily regulated by the Federal Home Loan Bank Board.
             A repurchase agreement is a Liability and a reverse repurchase agreement is an asset.
             Long maturity investments for a bank are Us T bonds, agency securities, Mortgage backed securities.
             Municipal bonds is paying .06 annual coupon, an equivalent risk bond is paying .07, investors in a tax bracket of (.07(1-x)=.06, 14.28%.
             AU- measures the banks ability to generate income from assets, control assets.
             Equity to assets ratio--- 15% of equity to asset ration, can lend out. Ex. 15%*10%equity ratio .
             Financial services Modernization act led to interstate banking in the US.
             Deposit insurance reduces bank runs, helped cause the insolvency of the FSLIC, induced moral hazard at DIs.
             Term life insurance policy does not have a savings feature, Whole life, Variable life, and universal life do.
             Interest on annuities is not taxed until the investor receives the payments.
             The tax status of annuity withdraws is affected by the investors income level.
             Annuity contributions are not capped by the IRS, Annuities can be deferred or immediate.
             Flood insurance is an example of a high severity, low frequency event, difficult to predict loss.
             An investment banker may be unwilling to engage in a firm commitment offer if the issuer is relatively unknown to the public, and desires too low offer price.
             SEC -regulates securities firms trading and underwriting activities "An agency transaction includes a broker receiving a fee.
             Pure arbitrage "buy French francs in NY and simultaneously sell them in Frankfurt for a gain.
             4 layers of regulation designed to preserve the safety and soundness of DI 1 "Diversification of lending limits, 2 "Minimum capital requirement, min level of protection against insolvency, monitor the amount of risk undertaken, particularly in generating growth.