12.2 Commercial Banks And Investment Banks Flashcards
What is a commercial bank
Financial institutions aims to make profits by selling banking services to customers
What do commercial banks do
Lend to customers
Accept deposits through general public that can be transferred (card cheque ect)
What is an investment bank
Bank doesn’t accept depots from ordinary people
Advises private companies on how to be private or advising how to buy other companies
Deal with financial markets for their own account
How do investment banks help prosper institutions
Sell shares or bonds to investors and hedge against huge risks by underwriting shares issues
What is a systemic risk?
Risk of the breakdown of the entire financial system caused by inter-linkages within the financial system rather than the failure of a bank or financial institution within the system
What is a one-off shock
Something that only affects 1 singular bank
What is credit?
When a bank makes a loan it creates credit
Loan results in the creation of an advance which is an asset on the banks balance sheet and a deposit which is a liability of the bank
Define the credit and bank depositing process in a monopoly banking system(3)
Behaves as if there is just one bank in the economy
Possesses only one reserve asset (cash) which it uses to meet cash withdrawals by customers
The bank decides that to maintain confidence and always be able to meet its customers desire to withdrawal cash out of their accounts it must always possess chase equal of 10% of consumer deposits
What type of banking system does Britain have
Multi-baking system
What is a monopoly banking system?
One bank in the economy
Bank possesses only one reserve asset namely cash
The bank decide that to maintain confidence and always to be able to meet its customer needs
What is profitability?
The state or condition of yielding a financial profit or gain
What is security?
Secured loans, such as mortgage loans secured against the value of property, are less risky for banks than unsecured loans
What does prudent banking involve?
Trading off liquidity with profitability
