CP1 - A1 - Banking Flashcards
Banking book
Consists of everything not in the trading book
Trading book
A portfolio of financial instruments held by a bank, which are actively traded and which are to facilitate trading for the customers
Corporate banks
Traditional banking activities such as:
- taking deposits
- making loans
- clearing cheques
They also offer merchant services and payroll services to businesses.
Most have a banking book and a trading book.
Retail banks
Offer deposit, investment and loan products to customers.
These can be long-term or short-term savings and secured or unsecured loans.
Types of banks
CRICT RD
Corporate banks Retail banks Investment banks Community banks Traditional deposit taking banks
Reserve (or central) banks
Development banks
Investment banks
Refer to financial market activities such as:
- debt raising
- equity financing
for corporations or governments.
This includes originating securities, underwriting them, and then placing them with investors.
Reserve (or central) banks
The role of the reserve or central bank is to maintain price stability in the interests of balanced and sustainable economic growth.
Carries out these missions through:
- formulation and implementation of inflation targeting and monetary policy
Development banks
Also known as Development Financial Institutions.
- They provide credit through higher risk loans
- Usually supported by the government of a country
- Usually focuses on large infrastructure projects within the public and private sector
Traditional deposit taking banks
Known as commercial or retail banks.
Provide services such as:
- accepting deposits
- providing loans
- mortgage lending
- other basic investment products
They are usually public companies that are regulated, listed on an exchange and owned by their shareholders.
List 3 things that will influence the lending rate provided by a bank
- Credit quality of the customer
- Whether there is any security involved
- The tenor of the loan
Tenor - The length of time until the loan is due
List 7 typical retail banking products
COST MUV
- Credit cards
- Overdrafts
- Savings accounts
- Transactional accounts
- Mortgage loans
- Unsecured personal loans: revolving and term
- Vehicle finance loans
List 9 typical business products offered by banks
CAMPUS TOF
- Cash solutions
- Asset based finance
- Merchant services
- Portfolio management
- Unsecured loans
- Savings and investment products
- Transactional accounts
- Overdrafts
- Foreign exchange and trade solution services
Different types of loans in the loan book
- Retail secured
- Retail unsecured
- Corporate
- Commerical
List the key risks faced by banks
- Credit risk
- Market risk
- Operational risk
- Liquidity risk
Other risks faced include:
- Business strategic risk
- Currency risk
- Pre-payment risk
- Model risk
List the 6 different types of market risk
- Volatility risk
- Currency risk
- Basis risk
- Interest rate risk
- Liquidity risk
- Commodity price risk
