15- What Are Banks

What are banks?What do they do?B.p.mishraXIMB1Suggested Ground Rules Brainstormfreely;disagreeopenly,butcourteously it stimulates discussion & helps others think aloud!Speak up, or youll be called upon to speak! Dont take up more than your fair share of talk time!oid side con!ersations, let all participants benefit!"eep discussions and comments rele!antDont lea!e the room unless you ha!e toDont interrupt #ithout reasonsSpeakup#ithinteresting&rele!antideasthat#ill add !alue S#itch off cell phones$ %aptops!!!&riti'ue, not critici(e)*a!e fun 2Banks are intermediary , between willing Savers andisk taking Investors.!he provision o" a##epting deposit $ %iability&'nd manage the assets #reated by lending.(!he Banking )rm Intermediary*iVolume of loan & DepositsO TBI*IDILSL = Supply of loan curvesSD =Supply of DepositDL = Demand for loan I* = IDAT NO INT!"DIATION #OSTBasi# +rin#iples o" Banking+rin#iples o" Intermediation+rin#iples o" %i,-idity+rin#iples +ro)tability+rin#iples Solven#y+rin#iple o" !r-st./ommer#ial Bank.. Intermediaries per"orm si0 basi# "-n#tions 1.Denomination Intermediation 1 Small amo-nt o" savings "rom individ-als and others are pooled so as to give loans o" varying si2e 2.Default Risk intermediation 1 Willingness to give loans to risky borrowers witho-t h-rting the ret-rns to savers (. Maturity intermediation 1 'bility to #reate loans whose mat-ritiesmay mismat#h with the deposit mat-rity pro)le *.Liquidity intermediation 1 /laims "rom savers that arehighly li,-id while loans to borrowers are relatively less li,-id ..Information intermediation 1 'bility to gather and pro#ess in"ormation "rom the )nan#ial marketpla#e "ar more e3e#tively than the individ-al saver 4.Currency intermediation 1 'bility to lend #ross1#-rren#y 4The Core functions of the bank-Provision of Intermediation & liquidity.Indirectly a payment service.Asset transformation.5Banking Servi#e 's a +rod-#t6Supply of ServicesDemand $or services%rice&uantity of Services %rovided&'%'/ost o" intermediation1Sear#h7eri)#ationMonitoring 8n"or#ement9ther transa#tion #ost:!he interest margin is e,-al to the net o" lending ; deposit rateIn#l-desIntermediation #ost /ost o" #apital!he risk premi-m #harge on loans!a0 payment!he instit-tions pro)t!he more is the market #ompetition, themore narrow the interest margin.1Commercial banks are not allo"ed to 8nder"rite securitiesInvestment banks are not to offer bankin! services.1odern Investment banks en!a!e in-8nder"ritin!1&ATradin! of financial instruments- ) bonds# equity# derivatives # Proprietary*&und mana!ementConsultancy3lobal Custody2(1erchant $anks?-&rancis $arrin!s in