Ryan's section Flashcards
What are the 5 things financial intermediaries do?
1) Pool
2) Safekeep, Payments Systems Access and Accounting
3) Provide Liquidity
4) Diversify Risk
5) Collect and Process Information Services
What are the 2 ways the adverse selection problem can be solved?
1) Disclosure of information
2) Collateral and Net Worth
What is a commercial bank?
FI that accepts deposits, offers checking account services, makes various loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses.
What is the big differentiator between banks and non-financial firms
major assets of
banks are loans and their major liabilities are deposits.
Why are banks heavily regulated?
Because of the vital nature of the services they provide the economy, they are
heavily regulated to protect against disruption
What are the 5 typical bank divisions?
1) Retail banking
2) Corporate/Commercial Banking
3) Global Banking/Markets
4) Private Banking
5) Investment banking
What are mutual banks?
A mutual bank is a bank owned by its members who subscribe to a common fund
What is a major central aim of a mutual bank?
One of the central aims of a ‘mutual bank’ is to promote savings
How do mutual banks promote saving?
By providing ownership in the bank for people who deposit money.
What do depositors of mutual banks become entitled to?
They become entitled to vote at shareholder meetings, and they also receive
dividends on shares
What are the similarities between Commercial banks and Mutual Banks?
1) They are similarly regulated by the
SARB.
2) Both have a board of directors and can be capitalised by other
juristic persons (i.e. companies or trusts).
What are the differences between Commercial banks and Mutual Banks?
1) A MB is owned by its members who subscribe to a common fund while a commercial bank is owned by shareholders who may or may not be customers.
2) Mutual banks tend to be
smaller and offer limited services mostly focused on savings
- All of the following are characteristics of mutual banks except:
a. Mutual banks are regulated by the SARB.
b. Like commercial banks, mutual banks have a board of directors and can be capitalised by other juristic persons.
c. Mutual banks are constituted according to a common bond between members rather than for profit maximisation.
d. Mutual banks tend to focus mostly on savings and many don’t offer credit facilities.
c. Mutual banks are constituted according to a common bond between members rather than
for profit maximisation
What is a Cooperative Bank?
FI democratically owned and controlled by its members (legal minimum is 200) to meet their common financial needs
What is the primary activity of a Cooperative Bank?
Primary activity is to offer a safe place for members’ savings and also to offer financial assistance (i.e. loans to members) at low cost
