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CHAP 1 CONCEPT OF BANK RISKS ((1.1 Banking Business Activities, Products…
CHAP 1 CONCEPT OF BANK RISKS
1.2 Roles of Banks in the Economy
Financial Intermediation
Functions (Ceccheti and Schoenholtz 2011)
2) Providing safe keeping, accounting and payment mechanisms for resources
3)Providing liquidity
1)Pooling resources of small savers
4)Diversifying risk
5)Collecting and processing infomration
Borrower's perspective
adm and distribution cost
transactional cost
Depositors' perspective
monitoring cost
liquidity costs
Other Roles of Banks
3) Liquidity Transformation
4) Payment Role
2)Maturity transformation
5) Risk management
1) Asset transformation
1.3 Typology of Bank Risks
Financial Risks
credit risk
transactional
retail
corporate
counterparty
sovereign
country
transfer risk
portfolio
concentration
operational risk
people
process
system
external
market risk
IR
traded
banking
Commodity
unique characteristics
seasonal
concentration of supply
FX
trading
business
translation
transaction
banking
Equity
systematic or beta
unsystematic
specific
can be diversify
general
systemic,cant diversified
alm risk
B/S
structural mismatch
yield curce
basis
imperfect correlation
repricing
repricing
maturity
opitionality
Liquidity
funding based
asset based
Non-Financial Risks
strategic
reputational
legal and complaince
model
risk are unknown outcomes whose odds of happening can be measured
1.1 Banking Business Activities, Products and Business Lines
i.Commercial banking
ii. Investment banking :
Payments and Settlements
payment system-i. retail payment system, ii. large-value payment
Settlement-securities and financial instruments
Commercial Banking
Project Finance-repayment of project
Lending
Working capital financing facilities-OD, Short term advances, line of contingents
Medium to long term facilities-acquisition, investment, expansion
Real estate-bridge financing
Export finacing-export credit agency
Trade finance-trade transactions
Factoring-generate cash flows-sell receivables
Leasing-equipment
Finance lease
Operational lease
Sales and leaseback
Hire purchase
Vendor leasing
Block discounting
Guarantees-Bank guarantee
Bid bonds or tender guarantees
Commercial guarantees
Financial guarantees
Performance bonds/guarantees
Bill of exchange-bill of exchange
Retail Banking
Private Banking
High net worth clients
Card Services
Consumer and SME Banking
Consumer-savings,investment and borrowing for individual and household
SME-Small business
Agency Services-managing and protecting their assets
Corporate Trust
fiduciary capacity
Escrow services-third party
Documentary custodian services
Corporate Agency-transnational services for corporations and governments,
cheque clearing
payment processing(interest and dividends)
bill collections
tax management
Custody
custodial services for the settlement, safekeeping, reporting of client's marketable securities and cash
Trading and Sales- buy and sell financial instruments as equity,debt,fx,commodities, derivatives
Proprietary Trading
bank's role of taking an active risk position in an underlying instruments/assets,not relevant to client like principal transaction
Treasury
managing the bank's liquidity risk, long-term funding program and the level and composition of equity capital.
Market-making
creating secondary market
agency transaction
matching the client's buying and selling requirements, earning fixed fees or commissions, bid-ask spread
principal transactions
profit from the price movement of securities and may involve taking positions,principal market-makers may accumulate or short sell inventory of securities and express a view on the market.
Sales
Sales activities including marketing, distribution of the bank's products and services.
Asset Management
Separately managed accounts
Pooled investment accounts
Corporate Finance
Underwriting
- assisting in the issuance of new securities, involves helping borrowers lower the risk of an unsuccessful issue by commiting to sell a pre-agreed volume of securities for a fee.
Syndications-sharing loan with other banks
Securitization- Asset pooled
Initial public offering underwriting
Secondary market private placements
Financial Advisory
--providing comprehensive advice on strategic initiatives such as disposal of assets or companies, identifying potential acquisitions targets, evaluating strategic options and alternative risk management strategies
Privatization
provide to government to transfer ownership of publicly-owned assets/entities to private investors/cooperations
Initial public offering (IPO) advisory
Initial sale of a private company's equity shares to the public, its a complex process
Merger & acquisitions (M&A)
merger-consolidate-new company
acquisitions-integrate-purchase over-no new company
Research
Provide value-adding research provide insights into macroeconomic developments
Debt and equity advisory
Advising companies on raising funds
Retail Brokerage
Full service retail brokerage
Execution only brokerage
Investment- specialized and non traditional services (raise fund via debt and equity securities market,corporate finance with merger, acquisitions, restructuring,trading, i.e. brokerage and market-making, derivatives
Commercial - accept deposits and give loans