Please enable JavaScript.

Coggle requires JavaScript to display documents.

BANK OF AMERICA - Coggle Diagram

- - - - Short term liability
      - ST Liability
        
        Adv
        
        Lower cost
        
        Benefit during low interest period
        
        Benefit outweight risk
        
        increase interest rate
        
        At risk of increase cost
        
        However deposit is already at low rate
        
        bank run/iliquidity risk
        
        Though a risk, it is less likely
        
        Can be managed
        
        1 more item...
        
        Bank reputation
        
        Bank risk's management
        
        1 more item...
        
        Disadv
        
        Higher risk of interest rate increase
        
        Deposit = floating rate
        
        Term deposit/ aka fixed rate would be low in interest
        
        Deposit have Lower interest rate compared to other loan
        
        1 more item...
        
        Bank has to pay more when interest rate increase
        
        Increase cost
        
        1 more item...
        
        Higher risk of illiquidity
        
        Client have no obligation to withdrawal all their money
        
        though less likely
  - - - ST
    - - LT
        
        ST FUND VS LT FUND
        
        LT FUND
        
        Cost/Risk
        
        Higher risk to increase in interest rate
        
        Higher liquidity risk
        
        benefit
        
        Lower opportunity cost
        
        Higher benefit
        
        Higher TOTAL PROFIT/BENEFIT than short term loan
        
        ST FUND
        
        Cost/Risk
        
        Higher opportunity cost
        
        => Lower benefit/profit
        
        Benefit
        
        Protect against increase in interest increase
        
        More liquidity/Lower illiquidity risk
      - Long term Asset
        
        MA > ML
        DA > DL
        
        Nature of a commercial bank
        
        Lending money long term
        
        Collecting short term deposit
        
        CASA
        
        Advantage
        
        Advantage of LT Asset
        
        Combination
        
        Reduced risk of reducing interest rate
        
        2 more items...
        
        More income
        
        1 more item...
        
        Refinancing flexibility
        
        1 more item...
        
        Reducing cost/Cost saving
        
        1 more item...
        
        Advantage of ST Liability
        
        Disadvantage
        
        Dis.Adv of LT Asset
        
        Combination
        
        Liquidity risk
        
        1 more item...
        
        Interest risk
        
        1 more item...
        
        DisAvd LT. Loan
      - Major of INCOME SOURCE
    - - INCOME
        
        PRIOR TO GFC
        
        MORE LT
        
        Easy monetary policy
        
        GREED
        
        Less cash in bank
        
        More loan for other investment vehicle
        
        1 more item...
        
        Applied for both client and banks
        
        Increased borrowing
        
        Subprime lending
        
        DURING/AFTER GFC
        
        ECONOMIC CRISIS
        
        ST increase
        
        FEAR
        
        Client
        
        1 more item...
        
        Bank
        
        2 more items...
        
        LT decrease
        
        Interest rate increase
      - FUND
        
        before GFC
        
        ~50% IS DEPOSIT
        
        DURING/AFTER GFC
        
        ST debt decrease
        
        ML increase
        
        Gain protection from increase interest rate
        
        LT debt increase
      - EQUITY
        
        Increase
        
        Increase in asset > increase in Liablitty
        
        2007-2008
        
        Investment increase significantly
        
        2008-2009
        
        Cash and short term deposit increase significantly
        
        WHERE IS THE CASH FROM?
        
        Decrease in 2009-2010
        
        Increase in asset < increase in liability
        
        alternate way to analyse
        
        2007-2008
        
        Asset increase higher than Liability
        
        Liability
        
        Increase
        
        2 more items...
        
        Asset
        
        Increase
        
        2 more items...
        
        prior to GFC
        
        2008-2009
        
        Asset increase higher than Liability
        
        Liability
        
        1 more item...
        
        Asset
        
        Cash significant increase
        
        1 more item...
        
        Deposit increase significantly
        
        During GFC
        
        2009-2010
        
        Asset
        
        Cash decrease
        
        Liability