Module Fundamentals Flashcards

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1
Q

What are the Core Functions of a Bank? (DFM)

A
  • Deposit-Taking.
  • Full Intermediation.
  • Maturity Transformation.

Maturity transformation can otherwise be understood as the transferring of funds, “from agents in surplus demanding short-term deposits to agents in deficit with long-term financing needs.”

IMF Working Paper, Banks’ Maturity Transformation: Risk, Reward, and Policy [5].

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2
Q

What is Full Intermediation?

A

The practice of matching Lenders with surpluses to Borrowers with deficits.

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3
Q

What is Maturity Transformation?

A

The practice of borrowing for shorter timeframes than one lends, i.e. borrowing short and lending long.

Resultant to this practice is the creation of a ‘maturity mismatch’, which is arguably the essential source of banks’ fragility under the Fractional Reserve Model

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4
Q

What practice is yielded from combining Full Intermediation and Maturity Transformation?

A

The practice of transferring funds, “from agents in surplus demanding short-term deposits to agents in deficit with long-term financing needs.”

IMF Working Paper, Banks’ Maturity Transformation: Risk, Reward, and Policy [5].

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5
Q

What are the Seven Types of Bank? (CCIRCUS)

A
  • Clearing Bank.
  • Commercial Bank.
  • Investment Bank.
  • Retail Bank.
  • Challenger Bank.
  • Universal Bank.
  • Shadow Bank.
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6
Q

What is a Retail Bank?

A

A bank that provides financial services to individual consumers rather than businesses.

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7
Q

What is a Clearing Bank?

A

A bank that is member to its Central Bank’s payment clearning system and can thus effect payments between individuals or businesses.

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8
Q

What is a Commercial Bank?

A

A bank that provides general financial services to both individuals and companies, broadly focusing on issues of naitonal and global commerce.

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9
Q

What is an Investment Bank?

A

A bank that specializes in capital creation for large entites and proprietary trading.

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10
Q

What is a Universal Bank?

A

A bank which provides the whole range of financial services to all types of customer.

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11
Q

What is a Shadow Bank?

A

A non-bank entity which function like a bank, but is not regulated as such.

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12
Q

What is a Challenger Bank?

A

A bank that has entered the market after the GFC.

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13
Q

What is a Building Society?

A

A mutually-owned financial organization that focuses on deposit-taking and mortgage lending to individuals and households.

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14
Q

What is a Credit Union?

A

A mutually-owned financial organization that focuses on providing savings and loans to the individuals and households.

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15
Q

What are the Core Objectives of Banking Law and Regulation? (FMBC)

A
  • Financial Crime Prevention.
  • Market Conduct Regulation.
  • Maintenance of Bank Stability.
  • Consumer Protection.
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16
Q

Who are the Regulatory Authorities in Banking?

A
  • The Financial Conduct Authority.
  • The Prudential Regulation Authority.
17
Q

Considering the implications of Full Intermediation and Maturity Transformation, what are the Preeminent Dangers faced by banks?

A
  1. Liquidity risk, i.e. having to repay liabilities before assets have had sufficient time to mature.
  2. Solvency risk, i.e. having borrowers default on their debt.
18
Q

What are the Private Sources of Law in Banking Regulation? (VIC)

A
  1. Voluntary Codes.
  2. Industry Customs.
  3. Common Law.
19
Q

What are the Pubilc Law Sources of Banking Regulation? (PIES)

A
  1. Primary Law.
  2. International Standards of Practice.
  3. EU Law.
  4. Secondary Law.