Banks Flashcards
Central banks
E.g Bank of England
Acts as national bank and provides services to government , banking systems
Controlling monetary policy
Commercial bank
Makes profit by selling bankings services to its customers
Retail banks and ‘high street banks’
Accepting deposits and accepting efficient means of payment
Investment banks
Not generally accepts deposits from public
Offers financial advice and help with stock market flotation
What is a commercial banks balance sheet made of ?
Assets and liabilities
Value of assets must = value of total liabilities + shareholders equity
Assets that promote liquidity
Cash
Balance at the Bank of England
Money at short and call notice (lent to other banks)
Bills
Assets that promote profitability
Investments (banks)
Advances (I.e loans and mortgages to consumers)
Fixed assets (e.g buildings
Liabilities and equity
Long- term borrowing (bonds from bank)
Short term borrowing from money markets
Customer deposits
Share capital
Retained profit
3 objectives of a commercial bank
Profitability- extent to which an enterprise earns profit
Liquidity - ease with which an asset can be turned into cash without a loss of value
Security - a loan backed by collateral which can be seized in event of a default
Limits to a banks ability to provide credit
Holdings of capital assets
Demand for credit
Central bank regulation
Functions of central banks
Help government maintain stability
Bring about fianacial stability in monetary system
Acts as a lender of last resort
Controlling the note issue
Acting as bankers bank
International obligation
Why are nationalised bank not always a good thing ?
More inflation e.g lowering Intrest rates increase consumer spending this increases demand pull inflation
While private banks within countries lowers inflation
Factors influencing the base rate
GDP growth and spare capacity
Bank lending and consumer credit figures
Asset prices (houses and shares)
Business and consumer confidence
Trends in foreign exchange FX
Labour markets (unemployment/wages/earnings/labour costs/)
International data
How can central banks influence the growth of the money supply ?
Volume of cash produced
set reserve requirements
Intrest rates
QE
Open market operations
