Financial Institutions

Savings and Loans Associations , Mutual Savings and Credit Unions 8 lecture. Thrift institutions or thrifts. Mutual savings banks. Depositors are the owners of the firm. Mutual form of ownership Advantages. Savings and loan associations. Distribution of savings and loan assets. Savings and Loan Associations vs. Mutual Savings Banks. Mutual savings banks are not as heavily invested in mortgages and have more flexibility in their investing practices. Savings and Loans in Trouble The Thrift Crisis. Political Economy of the Savings and Loan Crisis. Principal agent problem. The principal – agent problem. Credit Unions Types of Organization Mutual Ownership Owned by depositors. Owned by their depositors. Common Bond Membership. Field of membership. Nonprofit , Tax Exempt Status. Regulation and Insurance Central Credit Unions. Credit Union Size. Credit Unions Credit Unions Types of Accounts Regular Share Accounts. Share Draft Accounts. Credit Unions Advantages and Disadvantages Advantages. Employer support ─ Tax advantage. ─ Strong trade associations. Disadvantages ─ Common bond requirement. Sources of funds. Uses of funds. Invested in loans. Insurance companies and pension funds 8 lecture. Adverse Selection and Moral Hazard in Insurance. Adverse Selection in Insurance. Mini Case Insurance Agent The Customer’s Ally. Growth and Organization of Insurance Companies. Mutual insurance company.

Generally, have fewer liabilities than other banks because deposits are ownership, not a liability

─1981–1982 were particularly bad year for some areas, such as the Texas real estate market

To act on taxpayers’ behalf, regulators seek to minimize the cost of deposit insurance:

Trade Associations. groups of credit unions that have organized together. The largest of the trade associations is the Credit Union National Association

• Those most likely to suffer loss are most likely to apply for insurance.

─ Exclusive agents only sell the products of one company.

Restrictive Provisions in policies are another insurance management tool for reducing moral hazard.

Private Pension Plans (stocks): any pension plan set up by employers, groups, or individuals

Pool individual investor’s savings to invest in a wide range of assets in a cost-effective way and diversify risk

balloon loan (single-payment) requires the borrower to make a single large payment at the loan’s maturity to retire the debt.

Borrowing from other money market sources (and occasionally from banks), and from their parent corporation

Money market is part of financial market where excesses of money and short term securities are traded.

Corporate Bonds: Debt Ratings (standard and poor’s; moody’s) (AAA; AA; A; BBB; BB; Aaa; Aa; A; Baa; Ba)

Central banks participate in the legal regulation, organize and supervise payment systems, run payment systems, run accounts of the state and depository institutions.

In addition to cash and non-cash manner of payment, clearing payments are also considered as a manner of making payments. Clearing payments refer to settlement of mutual claims and debt between participants without using money (e.g. compensation, cession, assignment, debt takeover etc.)

Cash still has a widespread use in less developed financial systems with traditional „culture of cash”, in day-to-day small transactions (e.g. at sale points not accepting more expensive cards or offering discount on cash payments). Its usage increases in a case of a war, financial crises or catastrophes.

Examples of European e-money institutions: Paypal (Europe) Ltd (UK), Starbucks (Europe) Ltd (UK), Autobusy Karlovy Vary, a.s. (Czech Republic), Paysafecard (Slovenia)

Transferable securities (characterised by secondary liquidity and have to be transferred to money at final debt settlement or collection of a claim)

Money substitutes are a sort of payment promises and may serve, in certain circumstances, instead of money as a payment instrument. They are based on money deposit, payment of the appropriate amount for their purchase or a loan.

o having real coverage because they are based on deposit or are being bought by cash

o securities and other documents of a value, examples: cheques, bonds, bills, certificates of deposit, tax securities, postage stamps, vouchers.