Intro to Banking_M2_HowBanksMakeMoney_FINAL.PDF - Introduction to Banking Suite Module 2 How Banks Make Money Strategy | Consulting | Digital |

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Introduction to Banking Suite Module 2: How Banks Make Money Strategy | Consulting | Digital | Technology | Operations
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Introduction to Banking Suite Module 2: How Banks Make Money Copyright © 2019 Accenture All rights reserved. ***Confidential – For Company Internal Use Only*** Page 2 of 17 Table of Contents Module Introduction .............................................................................................................. 3 Banks as Intermediaries ........................................................................................................ 4 Capital Requirements ............................................................................................................ 7 Banking Structure ................................................................................................................. 9 Banking Categories ............................................................................................................. 10 Traditional Banking Revenue .............................................................................................. 11 Revenue Shift ..................................................................................................................... 11 Module Summary ................................................................................................................ 14 Knowledge Checks ............................................................................................................. 15 Did You Know? ................................................................................................................... 16 Knowledge Check Answer Key ........................................................................................... 17 Important: If you are reviewing this content in printed form and are interested in accessing any of the hyperlinked references within the text, please go to the Introduction to Banking Suite Learning Board at - banking-suite. All hyperlinks are listed within the descriptions for each module on the Learning Board.
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Introduction to Banking Suite Module 2: How Banks Make Money Copyright © 2019 Accenture All rights reserved. ***Confidential – For Company Internal Use Only*** Page 3 of 17 Module Introduction Now that you have some context regarding the banking industry, let’s get into the details about how banks operate. In order to understand the challenges facing banks as they seek to rebuild profitability and implement new regulations, it is important to understand the basic economics of banking. Like any other business, a bank must manage its revenues, expenses, assets and liabilities. In this module, we’ll examine the fundamentals of banking by describing the functions and roles banks perform in the economy and the ways banks make money from the various products and services they provide.
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Introduction to Banking Suite Module 2: How Banks Make Money Copyright © 2019 Accenture All rights reserved. ***Confidential – For Company Internal Use Only*** Page 4 of 17 Banks as Intermediaries This graphic illustrates the relationship between households and businesses in an economy. Households sell labor to businesses, and in exchange receive wages. Businesses sell goods and services to households, and in exchange receive payment. The banks function as intermediaries that provide services for transactions and facilitate the flow of funds. Step 1 Step 2 Client 1 deposits $10,000 into his account at Bank A. Total inflow into banking system: $10,000 Client 1 Bank A $10,000 deposit Assuming Bank A holds 10% in reserve, it will loan out 90% (or $9,000) of Client 1’s deposit to Client 2. Total inflow into banking system: $10,000 Bank A Client 2 $9,000 loan
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Introduction to Banking Suite Module 2: How Banks Make Money Copyright © 2019 Accenture All rights reserved. ***Confidential – For Company Internal Use Only*** Page 5 of 17 Step 3 Step 4 Step 5 Step 6 This process will continue as each bank lends a percentage of each new deposit it receives, multiplying the money from the initial deposit. How much the money is multiplied by is calculated as one divided by the reserve ratio (the amount the bank holds in reserve). If the reserve
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