MIE 201 Ch. 20

the government sponsored enterprise responsible for guaranteeing and funding home mortgages

Fannie Mae (FNMA)

The federal agency responsible for protecting money in customer accounts and managing the transition of assets whenever a bank fails

Federal Deposit Insurance Corporation (FDIC)

can be used to represent debt obligations

deferred payment

What is the term for regulations to protect against conflicts of interest in investment banking?

"Chinese wall"

What "rule" in the Dodd Frank act prohibits commercial banks from speculative trading activity?

"Volcker Rule"

How much money was invested in credit swaps?

$45 trillion

T/F: The Fed is legally bound to pursue the economic priorities established by congress

True

electronic money transferring system operated by the fed for routine payments made by check.

Automated Clearing House

What are the 4 financial functions of money?

1. medium of exchange 2. Unit of accounting 3. store of value 4. deferred payment

How many regional banks are included in the federal reserve system?

12

When was the Federal reserve system established?

1913

By 2006, _____%+ of all new mortgages were subprime.

20%+

What percent of subprime mortgages were ARM?

50% (1/2)

How many sit on the board of governors? How long are their terms?

7/ 14 years

a mortgage that features variable interest rates over the life of the loan (starts low, gets high)

Adjustable Rate Mortgages

Which type of investment bank specializes in specific industries and/or services, such as mergers and acquisitions?

Boutique Investment Banks

a market situation in which frenzied demand for an asset pushes the price of that asset far beyond its true economic value

Bubble

What did the Dodd-Frank act establish to protect consumers?

Bureau of Consumer Financial Protection

What is the most powerful tool of the fed?

Buying/selling treasury bonds, bills, notes, etc.

M1 includes what?

Cash held by the public and deposited in a variety of checking accounts (basically, spendable money)

banks that accept deposits, offer various checking and savings accounts, and provide loans.

Commercial Banks

Nonprofit member-owned cooperatives that offer deposit accounts and lending services to customers and small businesses.

Credit Unions

companies that offer opinions about the creditworthiness of borrowers and of specific investments.

Credit rating agencies

the rate that member banks pay when they borrow funds from the Fed

Discount Rate

What legislation was passed to reform the banking industry and offered greater consumer protection?

Dodd-Frank Act (2010)

non-bank companies that use their own funds to offer mortgages

Independent Mortgage Companies

the interest rate that member banks charge each other to borrow money overnight from the funds they keep in the Federal Reserve Accounts

Federal Funds Rate

What committee decides monetary policy and includes the Fed's board of governors, president of the NYC Fed, and 4 of the other 11 regional presidents?

Federal Open Market Committee (FOMC)

the central banking system of the United States; responsible for regulating banks and implementing monetary policy.

Federal Reserve System

nonbank institutions that lend money to customers and businesses for cars and other vehicles, home improvements, expansion, purchases, and other purposes.

Finance Companies

What act repealed the Glass-Steagall Act, removing barriers?

Financial Services Modernization Act of 1999

What council, established by Dodd-Frank Act, monitors for systematic risk?

Financial Stability Oversight Council

A secondary mortgage institution similar to Fannie mae

Freddie Mac

what act restricted the crossing of investment and commercial banking, protected against catastrophic failure? (great depression)

Glass-Steagall Act (1933)

What are the three basic categories of investment banks?

Global, Regional, Boutique.

firms that offer a variety of services related to IPO's, mergers, acquisitions, and other investment matters.

Investment Banks

What is tranching?

Layers of risk

What was the biggest bankruptcy in US history?

Lehman Brothers

The burst of the housing bubble resulted in a ________ crisis and _______ freeze.

Liquidity crisis and credit freeze

the percentage of an asset's market value that a lender is willing to finance when offering a loan, the rest of the purchase price has to be paid by the buyer as a downpayment.

Loan-to-value

M2 includes what?

M1 AND savings accounts, balances in retail money-market mutual funds, and small time deposits.

Money supply can be measured by _____ and _____.

M1 and M2

a tool for simplifying transactions between buyers and sellers

Medium of Exchange

Banks that provide financial services to businesses; can also refer to private equity management.

Merchant Banks

anything generally accepted as a means of paying for goods and services; serves as a medium of exchange, a unit of accounting, a store of value, and a standard of deferred value.

Money

Credit derivatives based on home mortgages

Mortgage-backed securities

Can the Fed force banks to change their interest rates, etc?

NO- This is why they work indirectly.

Does transferring risk reduce or eliminate risk?

No

Do investment banks usually provide services to the public?

No, not unless they are very wealthy.

Is the federal funds rate set directly?

No- adjusted through: 1. Buying and selling Treasury bonds, bills and notes. 2. Adjusting reserve requirements 3. lending through the discount window

Buying and selling Treasury bonds, bills, and notes are also called "______ __________" operations.

Open Market Operations

Banking services for wealthy individuals and families.

Private Banking

Banks that provide financial services to customers.

Retail Banks

a process in which debts such as mortgages are pooled together and transformed into investments.

Securitization

The __________ rate influences the __________ rate.

The Discount rate influences the prime rate.

Offer deposit accounts and focus on offering home mortgage loans (AKA "savings and loan" associations)

Thrift Banks

a measure of value

Unit of accounting

Is the discount rate set directly?

Yes

Was the federal funds rate low or high following the burst of the .com bubble?

low

what is the most liquid asset?

money

the amount of money in circulation at any given point in time

money supply.

nonbank companies that initiate loans on behalf of a mortgage lender in exchange for a fee

mortgage brokers

a way of accumulating wealth until it is needed

store of value

home loans for borrowers with low credit scores

subprime mortgages

What is the name of the top 10-12 global investment banks (these dominate the industry)

the "bulge bracket"

the Loan to Value ratio was too______ during the real-estate bubble

too high

How much does the FDIC insure up to (per account)?

up to $250,000