Strategies of Depository Institutions.
Depository institutions are broadly classified into commercial banks and thrift institutions. The commercial banking industry provides commercial, industrial, and consumer loans and accepts deposits from individual and institutional customers. Commercial banking covers services such as cash management, credit services, deposit services, and foreign exchange. The explosive growth of secondary loan and credit markets altered the shape of the corporate banking industry. Commercial banks face challenges with respect to additional revenue generation in the event of economic uncertainty, regulatory issues, high liquidity costs, and low demand for loans. The basic functions of commercial banks are to accept deposits and provide loans. Other functions include providing overdraft facilities, discounting bills of exchange, fund investments, and agency functions. A commercial bank’s performance can be evaluated along the dimensions of deposit mobilization, quality of lending, capital adequacy analysis, liquidity, earnings, and loan growth. The CAMEL rating system is a supervisory tool for evaluating the soundness of a financial institution. Thrift institutions consist of mutual savings banks, savings and loan associations, and credit unions. These financial intermediaries raise funds through time and savings deposits and invest in residential mortgages and loans. Savings institutions face liquidity, credit, and interest rate risk.
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