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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