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Ebook Money, banking, and financial markets (4th edition): Part 2

(BQ) Part 2 book "Money, banking, and financial markets" has contents: Depository Institutions: Banks and bank management, financial industry structure, regulating the financial system, central banks in the world today, the central bank balance sheet and the money supply process,.and other contents. | Chapter 12 Depository Institutions: Banks and Bank Management Learning Objectives Understand . . . LO1 Bank assets and liabilities LO2 Bank capital and profitability LO3 Bank risk and risk management Banks are the most visible financial intermediaries in the economy. Most of us use the word bank to describe what people in the financial world call depository institutions. These are the financial institutions that accept deposits from savers and make loans to borrowers. What distinguishes depository institutions from nondepository institutions is their primary source of funds—that is, the liability side of their balance sheets. Depository institutions include commercial banks, savings and loans, and credit unions—the financial intermediaries most of us encounter in the course of our day-to-day lives. Banking is a business. Actually, it’s a combination of businesses designed to deliver the services discussed in Chapter 11. One business provides the accounting and recordkeeping services that track the balances in your accounts. Another grants you access to the payments system, allowing you to convert your account balances into cash or transfer them to someone else. Yet a third business pools the savings of many small depositors and uses them to make large loans to trustworthy borrowers. A fourth business offers customers diversification services, buying and selling financial instruments in the financial markets in an effort to make a profit. Banks trade in the financial markets not just as a service to their customers but in an effort to earn a profit for their owners as well. The intent of banks, of course, is to profit from each of these lines of business. Our objective in this chapter is to see how they do it. Not all banks make a profit. While some banks are extremely large, with hundreds of billions of dollars in loans and securities on their balance sheets, their access to funds is no guarantee of profitability. The risk that banks may fail is a problem not