Citi Bank. FIN 460 - 01

CITI BANK
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Institution
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Date of Submission
CITI BANK
Introduction
In the past wealthy people had no platform to engage in investments and venture into much profitable business opportunities. However, introduction of commercial banking so an increase of savings and consequently led to setting up of more businesses in the US. In the early 80s, these wealthy individuals would only engage with other individuals who promised investment returns to them. The first banks had two functions. They not only provided opportunities to borrow and fund the entrepreneurs who had inadequate money but they also acted as a money saving entity for individuals who were not ready to invest their money due to the high risks involved. The early banking system encouraged business investment that led to economic growth in the US as titled to revolution in finance.
In the United States, banking is not only regulated by the federal system but also the state governments. Banks assets contribute a large percentage of the US economy to tunes of up to 56 percent for only the five largest banks. The regulations on the state and federal level that apply to a particular bank depend on its charter. The regulatory policies and consequent agencies of banking in the US are separate from those of the insurance. The accounts in the United States' banks are insured to prevent the banks from going bankrupt. Other policies are also put in place to cushion these banks and bail them out in the event that they face the bankruptcy threat. Banks that are failing are bought off by the Federal Deposit Insurance Corporation or taken for a short period for administration and sold to the other banks or merged to larger banks. The federal banking policies address a number of issues including, money laundering, terrorism, fraud, information disclosure and money lending. This paper will put focus on one of the largest banks in the United States, Citi Bank.
Historical development of the bank
Citibank is just a part of the Citi Group multinational financial Service Corporation. The bank was instituted on June 16, 1812. It was first referred to as the City Bank of New York before the changed to First National Bank of New York. The banks operate in more than 160 countries in the globe. It is however surprising that it operates more than 700 offices in the United States even though it has a total of 1, 400 offices in the whole of its operation. In the USs, Citi bank has offices in all the States and in major cities.
Colonel Samuel Osgood was the founding president of the bank. Later on, the bank was mainly into treasury and finance during the tenure of the then president, Moses Taylor. Changing of the bank's name from Citi Bank to First National Bank of New York was in 1863 after it got the opportunity to join the national banking system in the US then. The bank introduced the dollar in its operation during the periods when it was in dealing with credit cards and leasing. Its operations in the credit card business proved to be abloom to the bank as it was able to amass huge profits. The bank was the pioneer of setting up a foreign department in 1868. Later on the enactment of the Federal Reserve Act gave the bank a lee way to establish its branch in Argentina in 1914.In 1929, most of the economist had attributed the Great Depression to have been caused by the rapid policies of the bank under the then President and Chairman, Charles Mitchelle.
In 1967, the credit card sections of the bank later on become an affiliate of the MasterCard in 1967. This saw an introduction of Charge service credit card. In 1967, Mr. Wriston, the then CEO influenced the rebranding of the First National Citi Bank to Citibank which was a holding company on its own. Consequently the corporation also rebranded to Citicorp which was the parent company of Citi bank acting as its subsidiary.
Troubled Asset Relief Program (TARP) Program
The Unite States government has made moves to save banks from collapse. In the year 2008, the government introduced the TARP program to be able to buy up equities and assets from the country's financial institution. This move was to fortify the financial division of the country. Using the same policy, the government was able deal with the crisis in the mortgage sector. The program enabled the creation of a treasury fund that would boost the financial crisis of the period of 2007 to 2008. The US treasury was given the authority by the program's policies to be able to buy up to 700 billion dollars of mortgage backed securities from financial institutions in all over the states. This was to ensure that there was the creation of liquidity and that the money market was left loose to the players. This program came as a result of the establishment of the Emergency Economic Stabilization Act of 2008.By giving the treasury 250 billion, it enables it to buy assets that are difficult to value and are illiquid from players in the money market. This program enables financial institution to avoid losses by improving their balance sheet as it boosts the asset's liquidity the secondary market purchase.
Citi bank benefitted from the funds of the TARP program. It received a lump some 45 billion dollars in bailout money from treasury. The money has helped the bank form its ailing status. The bank approved over 36 billion of r=the money to go out in loans. A billion of the loan money was for students and 2.5 billion for people in business and those who needs personal loans. In addition, the money helped the company to stretch credit limits and also open up more accounts for holders of the credit card. In short, the bank has tried as much as it can to use the TARP money to improve the experiences and lifestyles of the American people.
However, other financial institutions have complained that the TARP money hasonly benefitted the large financial institutions and banks. Claims the Wells Fargo, Citi Bank, Bank of America and Chase Bank have had a lion's share of the money leaving only peanuts for others to chew. Even though the TARP money helped the other financial institutions the thrifts and community banks received less compared to the large banks.
The Federal Reserve System stress test
Over the last few years Citi Bank's stress test results have improved. An 8.3 percent tier 1 ratio of capital was posted by the bank. The stress test usually depicts the survival of a financial institution in the event that an economic or financial crisis occurs and is a tool that helps to analyze how much capital a financial institution has plus its planning strategies. Stress test are performed annually to ensure that the financial institution have sufficient capital that can enable them to operate. These tests have been performed for three years to all the financial institutions, especially banks. The recent stress test however has been performed in two faces. The banks' performance is first compared to the Federal Reserve Bank models before signing off the bank's capital to be returned to the shareholders is done. Only companies that have banks as their subsidiaries with a total of more than 50 billion dollars in assets and financial companies that...