Financial Institutions Flashcards
What are financial institutions?
They provide financial services.
What are depository institutions?
Can accept deposits from general public (legally allowed).
What are non-depository institutions?
Cannot accept deposits from general public. BUT Can take other forms of money. - Insurance providers - Investment funds
What are the different licenses are given by the central banks?
(Depository Institutions)
(5)
1) Commercial Banks
a) Local Banks
b) Qualifying Full Banks
c) Wholesale Banks
d) Offshore banks
2) Savings Banks
3) Finance Companies
4) Savings & Loan associations
5) Credit Unions
What are the different licenses are given by the central banks?
(Non-depository Institutions)
(8)
1) Insurance Companies
2) Pension Funds
3) Investment/Merchant banks
4) Mutual Funds
5) Unit Trust
6) Private Equity Funds
7) Hedge Funds
8) Sovereign Wealth Funds (SWF)
What are the aims of Commerical Banks (Depository Institutions)?
Generate Profits
How many Local banks (Depository Institutions) are there in singapore?
(4)
1) DBS
2) OCBC
3) UOB
4) Bank of Singapore (Private arm of OCBC)
*In the past, UOB has Far Eastern Bank, and DBS had the Islamic Bank of Asia (Where DBS + Investors had stakes in the Middle East), now converted into an investment bank under DBS.
How do the commercial banks (Depository Institutions) earn profits?
1) Depositer deposits money
2) Bank would pay them interest.
3) Bank takes the deposited money to lend to busineses
4) Bank charge a higher interest rate
- Difference between the interest rate is the profit that banks made
- In order to give out more loans, banks need to attract people to deposit their money through the interest rates
How many Qualifying Full Banks (Depository Institutions) are there in singapore?
1) Bank of China
2) BNP Paribas
3) China Construction Bank
4) Citibank (Singapore)
5) HSBC (Singapore)
6) ICICI Bank
7) Industrial and Commercial Bank of China
8) MayBank (Singapore)
9) Standard Chartered Bank (Singapore)
10) State Bank of India
Ans: 10.
How do these Qualifying Full Banks (Depository Institutions) work?
- Can open 25 places of business (10 branches)
- Share ATMs among themselves
- Tap ATMs of local banks
- They have more functions & ability than non-qualifying full banks
- This license allow foreign banks to open shop in SG
Which of the 10 Qualifying Full banks (Depository Institutions) has been incorporated locally so far?
(4)
Incorporated retail arm: They have taken in a lot of deposits & dealt with many common people businesses.
- Therefore, MAS told them to be locally incorporated.
- MAS can then implement more strict regulations
- Lower the risk
- Need to protect the people’s $$$
1) Citibank (Singapore) Limited
2) HSBC (Singapore) Limited
3) Maybank (Singapore) Limited
4) Standard Chartered Bank (Singapore) Limited
How many Full Banks (Depository Institutions) are there in Singapore?
21 branches of foreign-incorporated banks.
Ans: 21.
How many Wholesale banks (Depository Institutions) are there in Singapore?
98
How do Wholesale banks (Depository Institutions) operate in Singapore?
- Formerly known as restricted banks (The kind of businesses they do are restricted)
- No retail saving deposit
- No fixed deposit of less than $250,000
- They cannot have transactions with common people
How many Offshore banks (Depository Institutions) are there in Singapore?
Ans: 0.
How does Offshore banks (Depository Institutions) work?
- No business done in the country –> More restrictive than wholesale banks
- Transactions done in foreign currency units, not in SGD business units
- Most transaction in ACU, very limited DBU business
- Less regulation & transparency
- Greater privacy
- Often used to hide undeclared income
- Little/no tax (Tax Haven)
Why did Singapore collapse Offshore banks (Depository Institutions) into the wholesale category?
ACU: Asian Currency Units
DBU: Domestic Banking Units
*Taxed differently, risks are different
Since DBU had very limited businesses, MAS done away with the distinction between DBU and ACU.
Previously (as at 2017) there were 58 wholesale banks and 36 offshore banks.
Now: No more offshore banking licence.
How do Savings Banks (POSB) operate?
Depository Institutions
- They could give a lot of mortgage loans (housing etc.)
- Encourage savings from consumers
- No Forex Activity
- No deposits from corporate
- No financing of foreign trade
- Restricted lending activities: Credit POSB
*All these help to manage risks for the common people
How many savings bank does singapore have?
Depository Institutions
- Bought over by DBS on Nov 1998
Ans: 0.
How do Finance Companies in Singapore operate?
(Depository Institutions)
(4)
- No checking account
- Mostly fixed deposits
- Similar to banks: They can take in deposits and give out loans
- Different from banks: Cannot take same kind of deposits
- They are not as capitalised as the 4 locally corporated banks
What are the 2 finance companies in Singapore?
1) Hong Leong Finance (HLF)
2) Singapura Finance (SIF)
What are the changes made to the loaning policies of the finance companies?
Previously:
1) No unsecured personal loan > S$5,000
2) Total unsecured loans must be < 10% of capital funds
* SMEs are unable to get much financing help
Currently:
1) Loan has increased to 0.5% of capital funds per borrower
2) Total unsecured loans < 25% of capital funds (1/4 of the businesses)
* Help the 200,000 SMEs in Singapore
What are secured loans?
- Has collaterals
- Approved for a specific purchase
Examples:
1) Mortgages
a) Car
b) House
What are unsecured loans?
- Flexible
- Loan to purchase anything
Example:
1) Credit card debt - They are riskier.
- Thus, higher i/r + smaller loans
How do Savings and loan associations operate?
Depository Institutions
- Mortgage lenders
- They specialise in giving out mortgage loans
- Bank-like entity
How many Savings and loan associations are there in Singapore?
(Depository Institutions)
Ans: 0.
Mainly US.
What happened during the S&L crisis in the 1980s?
(Depository Institutions)
(7)
- Short-term deposits (time to maturity = 0, can withdraw anytime)
- Long-term fixed mortgage loans
- Fluctuation of interest rates
- Lifting of deposit rate ceiling (Regulation Q): Interest rates increase, banks can now freely compete to become more attractive to depositers.
- Interest rate of new loans increased due to inflation BUT then, it caused negative net interest income.
- Thus, had to increase risk of loan portfolio and lend out to more riskier profiles for higher income flow.
- Decrease in real estate prices leading to defaults (Bubble burst)
Why did interest rates increase for deposits in the S&L crisis in the US in the 1980s?
- Curb inflation