Federal funds rate (Ofer Abarbanel online library)

In the United States, the federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis. Reserve balances are amounts held at the Federal Reserve to maintain depository institutions’ reserve requirements. Institutions with surplus balances in their accounts lend those balances to institutions in need of larger balances. The federal funds rate is an important benchmark in financial markets.[1][2]

The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks, and the weighted average of this rate across all such transactions is the federal funds effective rate. Continue reading “Federal funds rate (Ofer Abarbanel online library)”

Fair Finance Watch (Ofer Abarbanel online library)

Fair Finance Watch is a non-governmental organization known for its investigations of the banking industry’s treatment of low-income communities of color from around the world. It produces weekly reports on global banks like HSBC, Citigroup, Royal Bank of Scotland, Mizuho Financial Group and others. It was founded by Matthew Lee.

In October 2012, Fair Finance Watch raised fair lending and compliance issues about M&T Bank’s application to acquire Hudson City Bancorp, which remains unapproved as of June 2013.[1]

In the Spring of 2013, in the US, Fair Finance Watch has for example raised fair lending issues regarding Investors Bank.[2] Continue reading “Fair Finance Watch (Ofer Abarbanel online library)”

Excess reserves (Ofer Abarbanel online library)

In banking, excess reserves are bank reserves in excess of a reserve requirement set by a central bank.[1]

In the United States, bank reserves for a commercial bank are held in part as a credit balance in an account for the commercial bank at the applicable Federal Reserve bank (FRB). This credit balance is not separated into separate “minimum reserves” and “excess reserves” accounts. The total amount of FRB credits held in all FRB accounts for all commercial banks, together with all currency and vault cash, form the M0 monetary base. Holding excess reserves has an opportunity cost if higher risk-adjusted interest can be earned by putting the funds elsewhere. For banks in the U.S. Federal Reserve System, this earning process is accomplished by a given bank in the very short term by making short-term (usually overnight) loans on the federal funds market to another bank that may be short of its reserve requirements. Continue reading “Excess reserves (Ofer Abarbanel online library)”

Eonia (Ofer Abarbanel online library)

Eonia (Euro Overnight Index Average) is computed as a weighted average of all overnight unsecured lending transactions in the interbank market, undertaken in the European Union and European Free Trade Association (EFTA) countries by the Panel Banks[clarification needed]. It is reported on an ACT/360 day count convention and is displayed to three decimal places. “Overnight” means from one TARGET day (i.e. day on which the Trans-European Automated Real-time Gross Settlement Express Transfer system is open) to the next. The panel of reporting banks is the same as for Euribor, and a list is provided by the overseers of the publication of the index. There is no clear definition of ‘interbank market’ leading to the potential of subjective assessment of what is an ‘interbank loan’, albeit all panel banks are subject to the Eonia Code of Conduct. Continue reading “Eonia (Ofer Abarbanel online library)”

eBAM (Ofer Abarbanel online library)

Electronic Bank Account Management (abbreviated as eBAM) represents the automation, through software, of the following activities between banks and their corporate customers:[1]

  • Opening bank accounts
  • Maintaining bank accounts such as changing account signatories or spending limits
  • Closing bank accounts
  • Generating reports as required by law or regulation

The technology that is commonly used to implement eBAM automation is defined by SWIFT and the ISO 20022 Standard for Financial Services Messaging.[2] Continue reading “eBAM (Ofer Abarbanel online library)”

Duration gap (Ofer Abarbanel online library)

Duration gap is the difference between the duration of assets and liabilities held by a financial entity.[1]

Overview

The duration gap is a financial and accounting term and is typically used by banks, pension funds, or other financial institutions to measure their risk due to changes in the interest rate. This is one of the mismatches that can occur and are known as asset liability mismatches. Continue reading “Duration gap (Ofer Abarbanel online library)”

Direct bank (Ofer Abarbanel online library)

direct bank (sometimes called a branchless bankvirtual bankonline bank or an internet-only bank) is a bank without any branch network that offers its services remotely via online banking and telephone banking and may also provide access via ATMs (often through interbank network alliances), mail and mobile.[1] Direct banks reduce the significant costs of maintaining a branch network. Continue reading “Direct bank (Ofer Abarbanel online library)”

Diamond–Dybvig model (Ofer Abarbanel online library)

The Diamond–Dybvig model is an influential model of bank runs and related financial crises. The model shows how banks’ mix of illiquid assets (such as business or mortgage loans) and liquid liabilities (deposits which may be withdrawn at any time) may give rise to self-fulfilling panics among depositors.

Theory

The model, published in 1983 by Douglas W. Diamond of the University of Chicago and Philip H. Dybvig, then of Yale University and now of Washington University in St. Louis, shows how an institution with long-maturity assets and short-maturity liabilities can be unstable. Continue reading “Diamond–Dybvig model (Ofer Abarbanel online library)”

Depository bank (Ofer Abarbanel online library)

depository bank (U.S. usage) or depositary bank (predominantly EU usage) is a specialist financial entity which, depending on jurisdiction, facilitates investment in securities markets.

U.S. Depository Banks

In the United States, a depository is a bank organized in the US which provides all the stock transfer and agency services in connection with a depositary receipt program. This function includes arranging for a custodian to accept deposits of ordinary shares, issuing the negotiable receipts which back up the shares, maintaining the register of holders to reflect all transfers and exchanges, and distributing dividends in U.S. dollars. Continue reading “Depository bank (Ofer Abarbanel online library)”

Delegation Theory (Ofer Abarbanel online library)

Delegation theory refers to the process by which a manager shifts some of the responsibilities for a given task implementation to another team member with the view of achieving maximum result.

Applications of Delegation Theory

Independent Central Banks and Non Majoritarian Institutions

One of the most important areas where delegation theories have been applied has been in the debate over the merits of Independent Central Banks (ICBs) such as the Bank of England or the European Central Bank. This debate has corresponded to the theories of credible commitments and can be understood as a solution to problems posed by the two democratic pressure problems mentioned above where monetary policy is concerned. Continue reading “Delegation Theory (Ofer Abarbanel online library)”