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Samenvatting Bank management $9.88   Add to cart

Summary

Samenvatting Bank management

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  • Course
  • Institution

Sv bank management (master finance and risk management) business sciences.

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  • August 21, 2024
  • 75
  • 2023/2024
  • Summary
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LES 1: WHAT ARE BANKS?

Save our money

• Store of wealth (savings accounts)

Use our money

• Payment methods (checking account, debit/credit card, Bancontact, mobile banking, currency
exchange,…)

Get loans

• Mortgage, personal loan, car loan, student loan, business loan,…

Invest
Via bank or
• Term accounts, bonds, equities, pension saving, funds,… associated
entity
Insurance

• Car insurance, life insurance, family insurance, travel insurance,…




BANK BALANCE SHEET

Banks (and other financial institutions) have a different asset and liability structure compared to other firms

• Funded by financial liabilities:
o Deposits
o Bonds
o Subordinated debt
o (Equity capital)

• Assets are also mainly financial:
o Cash
o Loans
o Securities
o Fixed assets




1

,FIXED ASSETS

Branch network

• Brick and mortar
• Role used to attract new clients, wire transfer money
• Less necessary due to internet banking
• More based on giving advice (e.g. mortgages)
• In combination with fixed high costs, banks are closing down branches


LOANS

• Mortgages
• Consumer credit
• Business loans
• Credit lines
• Interbank loans
• (local) government loans


SECURITIES

Some very liquid and not so risky

• Treasury notes (< 10 years)
• Treasury bonds (> 10 years)

Some more risky, but also higher return

• Corporate bonds
• Equities
• Trading assets


LIABILITIES

Main source of funding are deposits

• Sight deposits
o No interest rates, demandable on sight
• Saving deposits
o Low interest rates, demandable
• Term deposits
o (Generally) higher interest rates, fixed term
• Wholesale/corporate deposits
• Interbank deposits


EQUITY

Banks typically have less equity compared to other firms

• Share capital



2

, • Retained earning
• (Subordinated debt)

The equity buffer is quite small for banks (around 5-6%)

• Defense against non-performing assets
• Regulation (Basel III) mainly concerned with maintaining high enough equity buffers
• Will be a major part of this course




BANK INCOME STATEMENT

Income is derived from:

• Lending
• Investing in other financial assets yielding a return
• Providing services

Expenses:

• Funding costs (deposits and non-deposit liabilities)
• Personnel costs
• Costs of running branch network
• Etc.


INCOME STATEMENT




3

, DECOMPOSING INCOME

Net interest income is the largest part of total income

Other types of income: trading, insurance activities, fee income (e.g. private banking, wealth management)

Costs: operational (personnel), reserves (for bad loans)

WHAT DIFFERENT TYPES OF BANKS ARE THERE?

TYPES OF BANKS

Depending on which business/funding is dominant, Fls can be divided into different business models. Saunders
and Cornett define a few:

• Depository institutions
o High proportion of funding from (retail) deposits, and main source of income real estate
loans
o Commercial banks, savings banks, credit unions
• Finance companies
o Do not accept deposits, but rely on short- and long-term debt as source of funds
o Often give more risky (personal) loans
• Securities firms
o Investment banks (originate, underwrite, distribute new securities)
o Brokerage firms (purchase, sale of existing securities)


TYPES OF BANK

Retail bank

• Consumer deposits, consumer loans, mortgages, small business loans

Wholesale bank (corporate bank)

• Deposits/loans to large companies, governments, pension funds, etc.

Investment bank/brokerage

• Fee/commission generating business (asset management,
M&A, trading)

Universal bank

• Offer all of the above (one-stop-shopping)




4

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