1 How has the asset composition of savings and loan associations differed from those of commercial banks? Explain why and how this distinction have changed (or may change) over time.

Savings and loan associations have traditionally concentrated in mortgage lending, while commercial banks have concentrated in commercial lending. Savings and loan associations are now allowed to diversify their asset portfolio to a greater degree and will likely increase their concentration in commercial loans (but not to the same degree as commercial banks).

Classify the types of financial institutions mentioned in this chapter as either depository or nondepository. Explain the general difference between depository and nondepository institution sources of funds.

Depository institutions include commercial banks, savings and loan associations, and credit unions. These institutions differ from nondepository institutions in that they accept deposits. The source of funds: Commercial Banks and Savings Institutions- Deposits from households, businesses, and government agencies. Credit Unions-Deposits from Credit Union members

Nondepository institutions include finance companies, mutual funds, insurance companies, pension funds, and Money market funds. Sources of funds:

Finance companies sell securities to households and businesses to obtain funds Mutual Funds (Dominant in total assets) –sell shares to households, businesses, and government agencies Insurance companies receive insurance premiums and earning from investments Pension funds receive employee/employer contributions. Money Market funds- sell shares to households, businesses, and government agencies Finance companies use funds to provide direct loans to consumers and businesses. Insurance companies and pension funds