Banking Flashcards
Case study, Nike
Phil Knight, Shoe Dog 2016
First national bank of oregon cut off due to huge concern of liquidity and risk
Banking differences by country
U.S. more likely to put into administration
Japanese hold shares, more likely to restructure debt
The role of Banks
Transform time and risk -> alchemy
Match those who want capital (borrowers) with those who need return (lenders)
Intermediaries take deposits and bundle as loans
Who are lenders
Individuals
Institutional
Who are borrowers
Individuals, corporates, govts and public agents
2 types of Markets
Primary - issuance of capital
Secondary - buying and selling negotiable
Algo trading key threat in secondary markets, erode any sort of gaming
Banking origins
Central bank is the governments banker, Gordon Brown BofE independant 1997 -> monetary policy, financial stability
£435B of QE 2016
Requirements of banking system
CONFIDENCE
Orders, reliable, reputation
Range of services to all systems
Stability
Banking rules and regulation
Capital rates Liquidity rules Large exposure rule FX controls Rights of inspection BASEL III
6 types of banking
- Commercial
- Merchant (help with funding)
- Savings (mutually owned, bscos)
- Co-operative
- Credit unions
- Islamic banks (sharing profits)
Basel 3 - 3 items
Liquidity up, leverage down, level and quality of capital up
Capital conversion buffer introduced (all about loss absorption)
10.5% of risk weighted assets (7% equity, 1.5% T1, 2% T2)
What LCRs show
High quality liquidt assets and outflows in 30D period - ensure operational if bank run
Net stable funding ratio
Longer term risk shown // adds to medium to long term funding requirements
Means less funds to lend so price of borrowing increases
B3 Impacts OECD
OECD: GDP growth will decrease
Less avaliable to lend // cost of debt increases because funding costs up
ST deposits less attractive to banks –> impacts ease of obtaining funds
2 main accounts offered by bank
1) Current account - cash in and out, immediate access, overdraft
2) deposit/saving account - more long term / 90D
Resident v nonresident
Changes fee structure, fund movement, approval
Treasurer considerations x4
Costs
How many
Location
Who with
What impacts bank charges x4
Balances
Turnover
Volume
Additional services
4 things the treasurer must understand
No ‘free’ services
Identify most significant item and focus on that
Check interest rates used and calculations
Check commission charges
International bank risks x4
1 - Local level funding requirements 2- local regulation 3 - central bank reporting 4 - enforcability 5 - cross border transactions
Wholesale banking what is
To larger organisations (typically financials)
Lower charges, much closer to LIBOR
What is investment banking
5 roles
- Accepting bills of exchange
- Raise new finance (new issues, rights issues and M&A)
- Security trading
- Derivative trading
- FX
