1. SI Sources and Uses of Funds Explain in general terms how savings institution
ID: 2736694 • Letter: 1
Question
1. SI Sources and Uses of Funds Explain in general terms how savings institutions differ from commercial banks with respect to their sources of funds and uses of funds. Discuss each source of funds for SIs. Identify and discuss the main uses of funds for SIs.
2. Ownership of SIs What are the alternative forms of ownership of a savings institution?
3. Regulation of SIs What criteria are used by regulators to examine a thrift institution?
6. Liquidity and Credit Risk Describe the liquidity and credit risk of savings institutions, and discuss how each is managed.
10. Risk Explain why many savings institutions experience financial problems at the same time.
7. Regulation of Finance Companies Describe the kinds of regulations that are imposed on finance companies.
8. Liquidity Position Explain how the liquidity position of finance companies differs from that of depository institutions such as commercial banks.
9. Exposure to Interest Rate Risk Explain how the interest rate risk of finance companies differs from that of savings institutions.
10. Exposure to Credit Risk Explain how the default risk of finance companies differs from that of other lending financial institutions.
Explanation / Answer
1.
Difference:
Commercial banks are larger institutions when compared to savings institutions. They raise funds through savings, deposits, issue of bonds and equity capital, borrowing from other banks etc.
Savings institutions obtain funds through saving and deposits. They concentrate mainly on mortgages.
The major sources of funds for savings institutions:
The main uses of funds for savings institutions:
2.
The alternative forms of ownership of a savings institution:
Stock saving institutions: in this type, the equity share holders will be the owners of the company which would allow them to have a larger compensation in case of profits.
Mutual savings institutions: these are owned by the deposit holders. Thus, these deposit holders will be the owners. These are less prone to takeovers.
3.
Criteria used by regulators to examine a thrift institution:
Onsite visits: regulators review the quality of the asset, the earnings and the capital that the institution is holding with them. This review will help them to come to a conclusion about the level of risk faced by the institution and at the same time to know about the amount of capital required to mitigate the risk.
6.
The deposits with savings institutions are for short time period. They need to be rolled over till the life of the mortgages. In case, the depositor withdraws before the life of the mortgage, the savings institution need to find ways to return the deposit holders money. This is liquidity risk.
Mechanisms to manage liquidity risk:
The saving institutions deploy most of their funds into mortgages which are a primary driver of credit risk.
Mechanisms to manage credit risk:
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.