Managing Fund Sources This assignment will require research outside of the textbook. Write a 7-8 page paper in which you: Provide a 30-year historical perspective of how banks have obtained their...

Running Head: MANAGING FUND SOURCES
Running Head: MANAGING FUND SOURCES
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MANAGING RESOURCES
Managing Fund Sources
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Managing Fund Sources
A 30-year Historical Perspective of how Banks have obtained their Capital
Over the past 30 years, banks in the United States have been obtaining capital from various sources. These sources include the Federal Reserve Bank, trading derivatives and revenues, real estates, and interests from loans.
The Federal Reserve Bank
Since the inception of the Federal Reserve Act of 1913, banks in the United States have had to benefit a lot. Banks had to obtain capital through three processes: open market operation, discount window operations, and reserve requirement. In open market operations, banks have obtained capital from the Fed bank by selling their securities at Fed funds rate. By selling their securities, banks could obtain capital while decreasing their reserve ratios. Through discount window operations, banks have been able to obtain capital from the Fed bank through secured short-term loans, which are provided to them on a temporarily basis. Under reserve requirement, it has been a mandatory requirement over the past years for all financial institutions (banks) in the country to hold a specified amount of money, commonly referred to as reserves, in the Fed Bank. The money held is then used as a source of capital for the banks when need arises (“What We do,” 2010).
Trading Derivatives and Revenues
Over the past years, commercial banks have reported trading in derivative and revenue activities. In this form of activities, banks have been involved in trading of illiquid credit assets, where they sell their holdings to the general public, hence fetching capital (“OCC’s Quarterly Report on Bank Trading...,” 2011, pp. 2-3).
Real Estates
Financial institutions in the country have holdings in real estates. Real estate comprise both commercial and residential. Commercial real estate includes apartment, industrial holdings, and offices. Residential real estate includes houses. Banks have been known for their increased investment in these holdings, forming a source in which capital is obtained once they are traded in the financial markets. Besides, banks have been involved in lending activities, in which they provide loans to individuals who aim at adventuring in real estate activities. As a result, they obtain interest rates, which comprise capital for them (“Real estate Investments,” n.d, pp. 58-59).
Interests from Loans
Interests from loans have also been another source of capital for Banks in the country over the last 30 years. Banks have varied lending rates, which they use to lend out money to individuals and organizations. In return, they obtain interests, depending on the length of time money is borrowed. Interests earned have constituted capital for the banks (Berrospide & Edge, 2010, pp. 6-7).
Recent and Pending Legislation that Concerns Bank’s Sources of Funds
The “Volker Rule,” enacted on July 21, 2010, is a recent and pending legislation that concerns sources of funds for banks. The legislation prohibits banks and their affiliates from participating in proprietary trading, sponsoring a private equity fund or a hedge fund, and retaining or acquiring any partnership, equity, or any other form of ownership interest in a private equity fund or a hedge fund. The legislation is to exclude non-bank financial institutions appointed by the Council for supervision purposes by the Board of Governors (“Client Alert,” 2010, pp. 1-2).
The legislation is to be applied to fund activities and proprietary trading by all banking organizations irrespective of where they conduct their trading activities. Besides, the legislation is to also apply to any financial institution found outside the country but provides funds or securities to banks in the country. These limitations of the legislation are expected to exert a significant impact on the banking organizations found both within and outside the country but are involved in the provision of funds to banks (“Client Alert,” 2010, pp. 2-3).
How the Legislation is to affect banks and other stakeholders
Banks
The Volker Rule legislation is to affect a bank entity defined as an insured depository institution, a company or an organization that controls and regulates an insured depository institution, and any organization that is termed a bank holding institution (“Client Alert,” 2010, p. 2).
The legislation is to affect banks in a number of ways. First, it is to affect banks by prohibiting them from engaging or participating in proprietary trading...