Chapter 19: Learning Objectives OTHER DEPOSITORY INSITUTIONS & FINANCIAL INSTITUTIONS What are “Near-Banks”? A Brief History of “Near-Banks” Types: Trusts, MLC, and Credit Unions Other depository institutions Performance
Dec 21, 2015
Chapter 19:Learning Objectives OTHER DEPOSITORY INSITUTIONS & FINANCIAL
INSTITUTIONS What are “Near-Banks”? A Brief History of “Near-Banks” Types:
Trusts, MLC, and Credit Unions Other depository institutions
Performance
Learning Objectives (CONT’D)
Other Financial Institutions: What Are They?
Insurance Industry: General Characteristics
Mutual Funds & Pension Funds: General Overview
Government Programs & Incentives
What are the Near Banks?
Trust & Mortgage Loan Cos. Credit Unions and Caisses Populaires Provincially based depository
institutions
Trust & Mortgage Loan Cos.
Offer typical banking type services Estate, Trust, and Agency function
remains most important distinguishing characteristic vis-à-vis Chartered banks
A bit of history: filling the gap left by the Chartered banks
What do their operations look like?
Credit Unions & Caisses Populaires
Primarily savings type institutions offering a “smorgasboard” of financial and non-financial services
Depositors are also the shareholders A little history: the need to generate a pool of savings in
a community Big changes are underway to merge with other
institutions and to bring in non depositing shareholders
Other Financial Institutions
Financial and Leasing Corporations Investment Dealers Government Financial Institutions Insurance Companies Mutual Funds Pension Funds
Investment Dealers
Underwrite securities Also act as primary market dealers Since the early 1990s have been largely
bought out by Chartered banks Serious regulatory issues have affected
the industry in the 1990s
Government Financial Institutions
In theory, fill in gaps left behind by the private market either because of risk or low profitability
Examples include: CMHC, FBDB, EDC, FCC
Insurance Companies
Most are federally regulated Separate Acts regulate domestic vs. foreign based
companies There are 2 types of cos.: Joint-stock (shareholder
owned) & mutual cos (policy holder owned). Assets must be sufficient to cover liabilities segregated fund component acts like an intermediary
by offering RRIFs They have their own “protection” fund that acts like
deposit insurance Demutualization is the dominant current trend
Investment Funds & Cos
Mutual Funds Closed-end (fixed no. of shares) Open-end (no share limit) usually specialize (e.g., bonds, mortgages, etc.)
Mutual Funds and Market Timing
How much is your mutual fund worth? Depends on the time/date used in the calculation of Price X No. of shares If the price used is at 4pm Eastern time then the price is “stale”
by 4:01pm! Stock/bond trading is a 24 hour round the world phenomenon If prices rise in North America they tend to rise in Asia where its
later. There is, therefore, an arbitrage opportunity. How would the investor know that a shares sold between time t
and t+ would earn a profit without their knowledge? Estimates of the returns from market timing? 35 to 70%
annually Not everyone agrees with these estimates + there is also a risk
of loss from the same phenomenon!
Investment Funds & Cos
Pension funds Who operates them? Public vs. Private How are funds built up? Contributory vs. compulsory Who manages them? Trusteeship How are benefits paid? Defined (size & fund return)
vs flat benefit (tenure)
Summary
There exist a large variety of public and private institutions which function as intermediaries but are not necessarily deposit-taking institutions
Public institutions attempt to fill a perceived void left by the private market either because risks are too high or anticipated profits too low
Other financial institutions include leasing cos., investment dealers, insurance companies, government financial institutions, mutual and pension funds
Other financial institutions have been termed “near banks” since they offer typical banking type services as well as other financial and non-financial services
The most important such institutions are the Trust&Mortgage Loan Cos. and Credit Unions
They emerged to fill the financial gap left by the Chartered banks but competition and technology are forcing them to change into institutions largely indistinguishable from the Chartered banks