Commercial banks Flashcards
Are commercial banks measured by asset or equity size?
Asset
What is the majority source of revenue for CBs?
Loans
To whom do small and big CBs loan to?
Small = individuals, big = commercial loans (institutional clients)
Why do commercial banks have a high debt-to-asset ratio?
Because of deposits (that are liabilities)
Do CBs have a high debt-to-asset ratio?
Yes
Why do CBs choose to maintain reserves at the minimum possible level?
Due to the low cost of deposit funding
Do CBs prefer to maintain reserves at the lowest possible level?
Yes
What happens to when an OBS liability event occur?
It is moved to the liabilities side of the BS and sometimes it is also an expense in the IS
What are the incentives for commercial banks to engage in OBS?
To avoid taxes and costs, as well as to complement their ordinary activities
To what risks do OBSs expose CBs to?
Credit, interest rate and foreign exchange risks
What are trust fees activities?
CBs hold and manage assets for individuals/corporations. Only large banks do so
What are corresponding banking activities?
Provision of banking services to small banks that don’t have the capacity to provide them themselves
Wrt regulations, before, how was the composition of the CB industry ?
Banks used to have very narrow operational areas and specialized
After the change in regulation for CBs what happened to the industry? Did it grew in number of banks?
No, because of change in regulation a lot of M&As happened and banks started to offer a larger array of services
What is shadow banking? And what is the effect of the lack of regulation?
When nonfinancial service firms provide banking services. shadow banking system, saver place their fund with money market mutual and similar funds, which invest these funds in the liabilities of shadow banks. Because of the lack of regulation, they take on risks that CBs aren’t willing to take
