Let's start our discussion with an introduction to chapter 11, Commercial Banks and Federal Credit Agencies in the Money Market. A foundation in the banking industry and the regulatory environment helps, key concepts regulations that brought us to where we are today include the history of the McFadden Act of 1927, the Banking Act of 1933 referred to as the Glass Steagall Act, the Banking Act of 1935 as the foundation for modern banking activity until the early 1980's. The Depository Institutions Deregulation and Monetary Control Act of 1980, the Garn-St. Germain Act of 1982 as well as the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ushered in the era of allowing banks to offer more services under supervision from different regulatory agencies. The OTS, Office of Thrift Supervision supplanted the Federal Home Loan Bank Board. Other legislation enacted includes the Omnibus Budget Reconciliation Act of 1993 and most importantly the Gramm-Leach-Bliley Act of 1999 which effectively ended the prohibition concerning the separation of banks from investment banking activities. Finally, the Federal Reserve regulates banks that have many subsidiary banks that have national charters as well as state charters. In respect to international banking Basel Committee on Banking Supervision sets standards for banks domiciled or transacting business in the EU. We are now up to the Basel III capital standards.

Bank performance and the interactions between the internal operations, external activities and the environmental factors; the statement of income, the balance sheet, the statement of earnings and the statements of cash flows; bank valuation, the goal of the bank management is to maximize shareholder's value by identifying factors that will increase the market value of the company. Financial ratios such as equity to assets, net income to assets, return on investment and MVA can be used for bank valuation; capital management where regulators consider bank capital as a cushion to absorb operating losses. Bank capital for regulatory purposes is composed of Tier 1 and Tier 2 capital. Capital rules force shareholders to co-insure bank losses in excess of bank equity capital. Shareholders need to consider the capital structure including financial risk, ownership control, management control, market timing, asset investment, dividend policy, transaction costs, M&A, internal or organic expansion.

If we look at exhibit 11.7 on page 345 we see that there are several Federal Agencies as well as Government sponsored agencies involved in the credit markets.

Pick one from each segment and discuss the purpose of the of the agency and the types of credit or credit enhancement the agency provides.