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Week 7 - Coggle Diagram
Week 7
Banks
Manage the most amount of money in Australia, making them the most important ADI and financial institution
2 types
Commercial (retail)
They make money by collecting deposits from savers, pooling together and lenging it oit at a higher interest rate to borrowers, benaks earn a return, the interest rate differential or net interest margin
Retail Liabilities: Savings account, transaction accounts, term deposit
Retail Assets: Home loans, personal loans, car loans, credit cards, insurance
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The essence of banking is to accept deposits from savers who store their money in the bank for a return (interest). These for bank liabilities. Then, combines with other sourcs if funds, this capital is lent out by the bank to borrowers at a higher return than paid for capital. These are bank assets
Commercial banks do this for individuals, households and SME's
Investment banks (IB's) take on higher risk activities; providing capital raising and risk management services and instruments for large business, public coorporations and financial institutions (wholesale market) (eg. IPO's, mergers and acquisitions, large debt issiuances, capital underwriting services)
Safety of deposits
Australia deposits up to 250,000 are protected under the financial claims scheme, operated by APRA.
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