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Title: Banking Institutions
Description: - Contrast the types of banking (Retail, Corporate, Investment) - Describe core elements of banking - Explain importance of : ○ Good liquidity management ○ Good asset management skills ○ Good liability management ○ Good capital adequacy management
Description: - Contrast the types of banking (Retail, Corporate, Investment) - Describe core elements of banking - Explain importance of : ○ Good liquidity management ○ Good asset management skills ○ Good liability management ○ Good capital adequacy management
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Retail and corporate banking/ Investment Banks
Monday, 24 October 2016
2:03 pm
Objectives:
- Contrast the types of banking
- Describe core elements of banking
- Explain importance of :
○ Good liquidity management
○ Good asset management skills
○ Good liability management
○ Good capital adequacy management
After the financial crisis, there was a further tightening of regulations on banks,
especially the big ones
...
Three core functions of banks:
1
...
Making loans
3
...
Fix the exchange rate so they would not fluctuate throughout
the process
...
- Commercial
○ All of the above
the process
...
- Commercial
○ All of the above
○ Specialized loans to encourage people to work with them
○ They diversify their products
...
In order to earn a spread between buy low and
sell high
...
Liquidity management:
- Banks have to be prepared for events where large amounts of cash has to be
withrawed
- If this managerial tsk is performed badly there are other sources of cash but
they can be costly:
○ Borrowing from central bank
○ Selling securities
○ Borrowing from central banks and other firms
Asset management:
- Banks need to lend money with an expectation of a low default risk and in a
diversified manner
Liability management:
- Banks must be able to find funds at low cost with the right mix of borrowing
Capital adequacy management:
- The bank needs to keep its capital at a high enough level to reduce the
chance of insolvency problems (assets becoming worth than liabilities) while
balancing the need to make profits by lending
Market activities:
- Besides helping companies with primary market activities, investment banks
have roles in market trading in the secondary market
○ Brokering - acting on behalf of clients to secure the best deal
○ Market making - quoting two prices for a security at which they are
willing to buy and sell the same security
○ Proprietary trading - the bank taking positions in securities in order to
try make a profit for itself rather the clients
§ Conflict of interest
Volker rule:
- A federal regulation that prohibits banks from conducting investment
activities with their own accounts and limits their ownership of any
relationship with hedge funds and private funds
...
Key summary:
- Retail and corporate banking provide services for our lives: mortgage,
business loans etc
- If banks are not prudent in operations and are vulnerable to collapse,
governments spend a lot of money to restore consumer confidence
- This chapter shows how important banking is to modern society
Title: Banking Institutions
Description: - Contrast the types of banking (Retail, Corporate, Investment) - Describe core elements of banking - Explain importance of : ○ Good liquidity management ○ Good asset management skills ○ Good liability management ○ Good capital adequacy management
Description: - Contrast the types of banking (Retail, Corporate, Investment) - Describe core elements of banking - Explain importance of : ○ Good liquidity management ○ Good asset management skills ○ Good liability management ○ Good capital adequacy management