Banking Industry
Commercial Bank vs. Thrift Institution Commercial banks are considered to be the largest group of depository institutions when measured by asset size; they are very distinguishable from savings institutions and credit unions in the size, regulation and composition of their loans and deposits. Deposits are the main source of funding for commercial banks while their liabilities may include various non-deposit funds such as subordinated notes and debentures. Commercial banks have two main assets on their balance sheet; loans and investment securities. Loans are responsible for the majority of assets held by commercial banks and are considered to be the most important revenue generator. The four main types of commercial bank loans are; business loans, real-estate loans, individual loans, and various other loans, which may be loans to emerging countries. Real-estate loans rank as the largest asset of the four main types of loans. Investment securities represent the second major asset on a commercial bank balance sheet. These consist of items such as; interest bearing deposit purchases from other financial institutions, federal funds sold to other banks, repurchase agreements and U.S. Tr
Savings associations and savings banks specialize in real estate lending, particularly loans for single-family homes and other residential properties. All credit unions' offer savings accounts, or time deposits; the larger institutions also offer checking and money market accounts, similar to commercial banks. easury securities, just to mention a few. Credit unions are exempt from federal taxation and sometimes receive subsidies, in the form of free space or supplies, from their sponsoring organizations. Shareholders or depositors and borrowers can own these two types of thrifts. Both saving associations and savings banks may be chartered by either the federal Office of Thrift Supervision (OTS) or by a state government regulator. Over the past two decades, however, they have acquired a wide range of financial powers, and now offer checking accounts and make business and consumer loans as well as mortgages, just as commercial banks. Savings institutions must maintain 65% of their portfolio in housing-related or other qualified assets to maintain their status. Savings institutions must hold a certain percentage of their loan portfolio in housing-related assets to retain their charter, as well as their membership in the Federal Home Loan Bank System. When examining a commercial bank balance sheet an interesting aspect that distinguishes them from other financial institutions is their high debt to assets ratio, which implies that a very large amount assets is funded by debt, either being deposits or borrowed funds. In the event of loan default the losses are charged off against the bank equity, thus reducing retained earnings and the equity of the bank. The number of thrifts declined dramatically in the late 1980's and early 1990's. These institutions are referred to as thrifts, because they originally offered only savings accounts, or time deposits. Credit unions' financial powers have expanded to include almost anything a bank or savings association can do, including making home loans, issuing credit cards, and even making some commercial loans. However, there has been a resurgence of thrifts in recent years.
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Acceptance Essays
