| What are the Roles of Commercial Banks? (NatWest, TSB..) | -Accept Savings
-Lend to Individuals and Firms
-Be a Financial Intermediaries (Move Funds from Lenders to Borrowers)
-Allow Payments from one Person to another
-Offer Financial Advice and Insurance. |
| How can Commercial Banks be split up? | -Retail Banking: Provides Services for Individuals and Small Firms (Savings and Mortgages). Known as High Street Banks
-Wholesale Banking: Dealing with Larger Firms Needs. |
| How do Commercial Banks benefit the Economy? | -Help Firms Grow
-Provide Loans to Individuals
-Financial Advice
-Facilitate Overseas Trade and Transfers |
| What are the Role of Investment Banks? (JP Morgan, Goldman Sachs..) | -Arrange Share and Bond Issues
-Give Advice on Raising Finance, and on Mergers and Acquisitions
-Buy and Sell Securities on their Clients Behalf
-Be a Market Maker (A Market Maker for a Security allows Firms and Individuals to buy and sell that Security without using the Stock Exchange - it makes it Easier to Trade)
-Engage with more Riskier but Profitable Activities |
| With Barclays and HSBC, how do they Operate? What is the systemic risk that comes from this? | -Barclays and HSBC have a Commerical and Investment Bank
-The Risk can come from how HSBC and Barclays can use Deposits from the Commerical Banking Side, and fund Activity on their Investment side. This comes with the potential to lose their Customer Deposits. |
| What are Pension Funds? (Government Pension Fund of Japan) | -Collect Peoples Pension Savings and Invest into Securities, in order to Grow
-When a Client Retires, their Pension Fund will pay out their Savings and the Returns the Pension Fund had Generated.-
-Pension Funds can dish out Long Term, Large Scale Investment in Firms |
| What are Insurance Firms? (Aviva) | -Charges Consumers Fees to provide Insurance Cover against Risks. This is very Important for the Economy. If the Firm is Insured against the Customer not Paying, it can Encourage Trade |
| What are Hedge Funds? (Citadel) | -Firms that have Given Money from Different Sources in the Hope they will get High Returns from such
-They can Invest in Different Markets, but Hedge Funds being Risky, and Barley covered by Regulation, makes them very Risky. |
| What are Private Equity Firms? (The Blackstone Group) | -They give Investments to Firms (via buying Equity) and then make a Maximum Return
-For Example, they help a Firm get so Successful that it gets sold for a Profit
-They are Criticized for Asset Stripping and Cutting Jobs |
| What is the Shadow Banking System? | -This Includes Unregulated Financial Intermediaries and Unregulated Activities of Regulated Financial Institutions
-The Size of such is much Bigger Recently, but its Hard to Exactly Tell
-The Credit it dishes out is getting Larger, but the Lack of an Emergency Support that Normal Banks have, and its Unknown Size, can Contribute to a Financial Crisis |
| What is needed for an Financial Instrument to be Classified as Money? | -Portable
-Widely Accepted
-Hard to Forge
-Durable
-Measure and Store of Value
-Standard / Deffered Payment |
| What does Liquidity mean? | -How Easily something can be Spent
-Notes and Coins are Very Easy, as they can be Spent Easily.
-Shares and Houses are Less Liquid, as they must be Converted to Cash firstly |
| What is Narrow and Broad Money? | -Narrow Money refers to Notes and Coins in Circulation, as well as Balances held at a Central Bank. Essentially, mace up of Financial Instruments that are Very Liquid
-Broad Money has Assets that are Less Liquid, and also Narrow Money |
| What do Banks do when thinking about Maximising Profits and Balancing their Assets on Liquidity? | -Banks want Profit to Benefit their Shareholders
-The Rate of Return on Illiquid Assets is Greater than Liquid Assets. However, Banks need a Certain Amount of Liquid Assets present to Repay Depositors, but not too much in case they become Unprofitable. Liquid Reserves must be Right |
| Why can Bank Runs be so Awful for Banks? | -If all Depositors took all their Savings out at the Same Time, then the Bank may fail to Repay them all due to a lack of Liquid Assets in their Reserve
-Bank Runs usually happen when there are Rumours or Fears about the Bank's Stability, Profitability or Solvency are Questioned |
| Why is Risk so Important for the Banking Sector? | -Ceterius Paribus: The More Risker an Asset/Investment is, the Greater Rewards comes out from it
-This explains the Different Interest Rates in Different Money Markets. In a more Safer Market, Interest Rates will be Lower
-But Banks must always Balance the Risk with the Profitability and the Economic Environment. |
