BANKSCLASS - 1 Banking Basics Structure Management ...

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Unformatted text preview: 1 Banking Basics: Structure, Management ¡ Commercial Bank Balance Sheet ¢ Sources and uses of funds ¡ Bank production process ¢ Asset transformation ¢ Provision of services ¢ Leverage ¡ Bank Management Concepts 1 ¢ Liquidity Management ¢ Asset Management ¢ Liability Management ¢ Capital Management ¢ Credit Risk Management ¢ Interest Rate Risk Management ¢ Trading Risk Bunnies in da bank?/ how banks work/ Bank runs / malkiel In the News? 2 Course Issues ¢ Midterm Weds ¢ EC-Greg Ip Little Book of Economics 3 2 Banking 4 Banks (aka Depository Institutions) ¡ Depository Institutions ¢ Financial intermediary S->I ¢ Deposits -> loans, securities ¢ Financial deregulation, innovation, globalization, re-regulation 5 re regulation ¡ Commercial Banks - $12.4 trillion in Assets ¢ 80% of bank assets ¢ Role in money creation and monetary policy ¡ Thrifts – Saving and Loans, Mutual Savings Banks, Credit Unions (and retail banks) What Do Banks Do? ¢ Earnings from Interest rate spreads, fees, other ¢ Asset transformation – sell liabilities, buy assets ¡ savings deposit → loan ¡ borrow short- lend long ¢ Lower transactions costs ¡ Scale specialization 6 ¡ Scale, specialization ¢ Deal With Asymmetric Information Problems ¡ adverse selection ¢ Credit checks, screening, relationships ¡ moral hazard ¢ Compensating balances, relationships 3 Elements of Banks Balance Sheets Assets-Liabilities=Net Worth/Bank Capital -> Assets=Liabilities+Capital Sources and Uses of Funds 7 Assets – Uses of Funds ¡ Cash Assets ¢ Reserves, other liquid assets ¡ Loans ¢ Real Estate Loans: collateralized by property, securitized or packaged collections of loans ¢ Business Loans: regular installment loans, lines of credit 8 ¢ Consumer Loans: auto loans, credit cards...
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BANKSCLASS - 1 Banking Basics Structure Management ...

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