Commercial and Investment Banks Flashcards
What is a commerical bank?
a bank that accepts deposits and lends money to the general public for personal or business use
What is the key function of an investment bank?
help companies raise finance by assiting with issue of new capital, also governments
- engage in buying and selling financial assets in money and FE markets
What are the three main functions of commercial banks?
- accepting deposits
- lending to economic agents
- providing an efficient means of payment
WHat are the three objectives of commercial banks?
- liquidity
- profitability
- security
How do commercial banks make their profits?
taking small, short term, liquid deposits from retail savers and turning them into larger,longer maturity loans
What is an investment bank?
help companies and financial institutions to raise finance by selling bonds or shares
What do investment banks generally do?
- advise private companies on how to become public companies
- advice on MandA
- research and private equity investments
What are private banks?
provide wealth management services to high net worth individuals
What are building societies?
owned by members, not shareholders, offer braod range of retail banking products
What are credit unions?
small and local non-profit lending institutions
What are challenger banks?
a number of new banks attempting to establish themselves in UK financial system and challenge leading banks
Explain objective of profitability?
- banks have requirement to ensure investors recieve a return on their investment.
-banks with weak profitability will see low share prices and struggle to find investment
Explain objective of security>
- banks face risks and uncertainties, must maintain safety in their assets
Explain objective of liquidity?
must ensure have enough liquidity to meet demands of customers
What are the two trade offs between objectives?
- liquidity and profitability
- profitability and security
