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INSTITUTIONS:
ACTIVITIES AND
CHARACTERISTICS
04/04/15
Asset/Liability Problem
Depository institutions are the financial
intermediaries, which are allowed/licensed
by the central banks to accept deposit for
doing lending business
Spread Income or Margin Income on
borrowing and lending is the primary
income.
Liability management is the main concern
and the institutions face following types of
risks
Credit Risk
Regulatory Risk
Interest Rate Risk
Non-deposit Borrowing
1. Discount Window of Central Bank
2. Inter bank loan Market (Repos)
3. Issuance of Debt Securities
Liquidity Concerns
Ways to obtain funds to accommodate
withdrawals and loan demand:
Attract additional deposits
Use currently-owned securities as collateral
for loans from other institutions
Raise short-term / long term funds in the
money/capital markets
Sell currently-owned securities
Borrow from central bank by discounting
eligible securities under possession
Types of Depository
Institutions
Commercial Banks
all types of deposit and offers short term and self liquidating loans to
its clients.
NBFIs
collected limited forms of term deposit s and use the funds in term loan
and lease.
Savings Banks
Credit Unions
Bank Services
Consumer Banking
1. Installment loans for consumer
durables,
2. Residential mortgage loans,
3. credit card loans,
4. Brokerage services,
5. Other Loans like student loans,
healthcare, etc.
6. Remittances
Corporate finance,
institutional banking
Commercial real estate finance,
Leasing,
Factoring
Capital market financing
Foreign exchange market products and
services
8. Guarantees
9. Advisory services
Bank Income
Spread between interest income
and cost of funds
Bid-Ask spread on financial assets
Capital gains on securities and
gains on foreign currency
transactions
Commissions on services rendered
or guarantees extended
Types Geographical
Restrictions in BD
Urban vs. rural branches
Branch on same area
International branch operation
Capital Requirements
Basle Accord on Bank Regulation
and Supervisory Practices
Capital adequacy standards (10per
cent of risk assts must be held as
total capital)
Risk-based capital guidelines where
commercial loans and guarantees are
considered as 100% risky assets,
Real estate 50%. Semi government
loan 20% and govt loan 0% risky.
Mortgages
Lease (financing) hold assets
Government securities
Stocks
Credit Unions
Owned by similar nature of
owners /members
Principal assets include
Small consumer loans
Residential mortgages
Securities