What Are Money Center Banks?

A money center bank is similar in structure to a standard bank; however, it's borrowing, and lending activities are with governments, large corporations, and regular banks. These types of financial in🔥stitutions (or designated branches of these institutions) generally do not borrow fr𒁃om or lend to consumers.

Understanding Money Center Banks

Money center banks are usually located in major economic centers such as London, Hong Kong, Tokyo, and New York. With their large 澳洲幸运5官方开奖结果体彩网:balance sheets, these banks are involved in national, and international 澳洲幸运5官方开奖结果体彩网:financial systems.

Money Center Banks an﷽d the 2008 Financial Crisis

Four examples of large money center banks in the United States include Bank of America, Citi, JP Morgan, and Wells Fargo, among others. During the 澳洲幸运5官方开奖结果体彩网:2008 financial crisis, these banks struggled financially; however, the U.S. Federal Reserve stepped in with three phases of 澳洲幸运5官方开奖结果体彩网:quantitative easing (QE) and bought back 澳洲幸运5官方开奖结果体彩网:mortgages.

In 2004, U.S. homeownership peaked at 70%; during the last quarter of 2005, home prices started to fall, which led to a 40% decline in the U.S. Home Construction Index during 2006. At this point, subprime borrowers were not able to withstand the higher interest rates and began defaulting on their loans. In 2007, multiple 澳洲幸运5官方开奖结果体彩网:subprime lenders were filing for 澳洲幸运5官方开奖结果体彩网:bankruptcy. This had a r🐠ipple effect througho𒆙ut the entire U.S. financial services industry—of course, hitting many money center banks hard.

During the period of QE, 𓆏these financial institutions had a steady stream of cash, with which they were able to originate new mortgages and loans, supporting overal♐l economic recovery.

Once the QE programs ceased, many were concerned that money center banks would not be able to grow organically without support. This is because the banks' primary sources of income were loan and mortgage interest charges. However, U.S. 澳洲幸运5官方开奖结果体彩网:interest rates did begin to rise, and with them, money center banks’ 澳洲幸运5官方开奖结果体彩网:net interest income also rose.

Money Center Banks and Dividend Income

Most money center banks raise funds from domestic and international money marks (as opposed to relying on depositors, like traditional banks). The 澳洲幸运5官方开奖结果体彩网:dividend yields of these institutions are enviable for some, who l💫ike to collect such securities for income.

The formula for c🐭alculating dividend yield🐲 is as follows:

 $\displaystyle{=\ \frac{\text{Annual Dividends Per Share}}{\text{Price Per Share}}}$= Price Per ShareAnnual Dividends Per Share​

Estimated current year yields often use the previous year’s dividend yield or take the latest 澳洲幸运5官方开奖结果体彩网:quarterly yield, and then multiply this by four (adjusting for 澳洲幸运5官方开奖结果体彩网:seasonality) and divide it by the current share price.

Quarterly rates of return are often annualized for comparative purposes. A stock or bond might return 5% in Q1. We could annualize the return by multiplying 5% by the number of periods or quarters in a year. The investment would have an 澳洲幸运5官方开奖结果体彩网:annualized return of ⛎20% because there are four quarters in one year or (5% * 4 = 20%).