MKT 100 Lecture 3: Klausner_s95

• School: Ryerson University
• Department: Marketing
• Course: MKT 100
• Professor: Anthony Bonato

Document Summary

1: legal def - financial institution that is bank chartered, each financial institution is subject to a pervasive set of rules. mil: payments system - bank substitute its promise for your promise. If bank insolvent -> payments it owes won"t be paid. net worth dropping through the floor: assets, because of insurance, equity can go down to negative number, s & l and banks - highly leveraged entities: net worth/assets = 3% 1975-85 tangible net worth (gaap: exclude goodwill)/assets: 5. 8% -> 0. 8% 1978-1989 percent of solvent thrifts: 99. 1% -> 82% > 120 x 3% = 3. 6 = 1. 5% of 200 capital rather than 3%) -> moral hazard gets worse, deductible shrunk: net worth certificates - fslic notes to failing (insolvent) banks issued by bank. Board, treated as asset (promise to pay to s&l) brought capital requirement up to minimum so s&l could continue: provides no cushion to regulator. (if 3% equity, bank could lose 3% assets b/f.