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Getting Back To Basics: What's A Bank?

The Fed has a Web site that provides online training for bank directors, because "the only thing that may be missing is a basic knowledge of banking and what to consider in overseeing a bank." Really. And, while a director's job is "important and carries responsibility, it may not be as daunting as it first appears." So here's an outline of what you will learn, based on the thinking of "The legendary Green Bay Packers football coach, Vince Lombardi, who recognized the importance of teaching basics to his players."
So, here we go. Lesson 1: What Is a Bank?

"The word "bank" evokes different mental pictures for different individuals. Some will think of the quintessential bank building with big stone columns and a large vault. Others will envision a balance sheet showing a bank's assets, liabilities, and capital. Still others will fall back on the regulatory definition of a bank: generally, an organization that is chartered by either a state or the federal government for the purpose of accepting deposits."

Lesson 2: Regulatory Structure

"Because you are a director of a regulated institution, it is important that you know something about the regulatory system under which it operates."

Lesson 3: What Is Capital?

Capital is necessary for your bank to operate. It serves as a cushion that absorbs losses and decreases in asset values. A bank's solvency promotes public confidence in the bank and the banking system by providing assurance that the bank will continue to honor its obligations and provide banking services. Your major responsibility regarding capital is to ensure the bank has an appropriate amount of capital in relation to the level of risk the bank has assumed in its operations.

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