Class notes
An Introduction to Economics of Banking
- Course
- Institution
The subsequent lecture notes offer a fundamental introduction to the field of Banking Economics.
[Show more]
Seller
Follow
SH4N1
Content preview
Economics of Banking - Lecture 1: Introduction to Financial Intermediation1. Entities in Financial Intermediation
Depository Intermediaries:
• Commercial Banks
• Thrifts: savings and loan associations (S&Ls) and mutual savings banks (MSBs)
• Credit Unions
Nondepository Intermediaries:
• Venture Capitalists
• Private Equity Firms
• Insurance Companies
• Investment Banks
• Mutual Funds
• Hedge Funds
2. Reasons for Financial Intermediaries
Question: Why do we have financial intermediaries?
• Channel funds from surplus units to deficit units.
• Provide expertise, information, and services that facilitate transactions.
3. Comparison with Direct Borrowing
Question: Why not borrow directly through newspaper ads?
• Financial intermediaries provide information, reduce risk, and enable complex
transactions.
• Similar to using a real estate agent when selling a house for better outcomes.
4. Brokerage Function
Bringing Together Transactors:
• Financial intermediaries connect parties with complementary financial needs.
• Services offered include expertise and information.
• Skills needed: ability to interpret subtle signals, information reuse.
Pre-contract Information Asymmetry:
• Adverse selection: the tendency to overstate repayment ability.
• Financial intermediaries reduce credit risk and interest rates.
• Credit score provides an instant likelihood of repayment.
Post-contract Information Asymmetry:
• Moral hazard: one party's actions harm the other's interests.
• Banks monitor borrowers to mitigate risk.
5. Qualitative Asset Transformation
Role of Financial Intermediaries:
• Intermediaries enhance liquidity and efficiency in markets.
• Rewarded with interest rates for transforming assets.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller SH4N1. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.87. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67474 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now