Tiền tệ ngân hàng FTU - Lý thuyết chương 6

Content • Banking history • What is a bank? • A bank’s balance sheet • Liabilities and net worth • Assets • Off-balance-sheet activities • Bank risk • General principles of bank management • Major world banks Lecture 6 Banking McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e Readings Banking History • Mishkin (2021), The Economics of Money, Banking, and Financial Markets, 13th edition, Pearson, Chapter 9 • Cecchetti and Schoenholtz (2012), Money, Banking, and Financial Markets, 4th edition, McGraw-Hill, Chapters 12 + 13 • The very first banks were probably the religious temples of the ancient world. 2 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Taking deposit Keeping “money” safe Making loans Making payment Book transaction McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 3 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 4 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Banking History Banking History • In many ways, the origins of capitalism as we see it today lie in the operations of Italian merchant and banking groups in the 13th, 14th and 15th centuries • The bankers sat at formal benches (banco), often in the open air • These bankers were very advanced for their times. They used bills of exchange, letters of credit, book entry for money and double entry bookkeeping • The one thing the Italians did not invent was banknotes • Internationally, the emphasis in banking, which had been in Florence, moved to Genoa as gold and silver flooded in from the New World. • Later, we have the rise of the two great rivals, the Dutch and the British Empires and Amsterdam and London as rival financial centres. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 5 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 6 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Banking History Banking History • We also see merchant banking (or investment banking) in the modern sense (e.g., Barings, Rothschild). Merchant bankers have two key activities – financing trade, using bills of exchange, and raising money for governments by selling bonds • From the 1750s up to 1900s, Europe’s population grew, rising from 180 million in 1800 to 450 million by 1914. This period also saw the growth of industrialization and urbanization, which was followed by the spread of banking • On the continental Europe, Rothschild had a hand in setting up some commercial banks. So, in continental Europe, especially Germany, Austria and Switzerland, banks did all types of banking – both ‘merchant’ and ‘commercial’ – the universal bank tradition. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 7 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. • In the UK, the merchant banks stuck to what they knew and did best (international bonds and trade finance). As a result, the British tradition has been one of looking at two types of banks – the merchant bank and the commercial bank. It was only in the 1960s and later that the large commercial banks thought it necessary to open merchant bank subsidiaries or buy one. McGraw-Hill/Irwin 8 Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Banking History What is a Bank • In the US, during the Great Depression years 1930–1933, some 9,000 bank failures wiped out the savings of many depositors at commercial banks. • The Glass-Steagall Act 1933 prohibited commercial banks from underwriting or dealing in corporate securities and limited banks to the purchase of debt securities approved by the bank regulatory agencies. Likewise, it prohibited investment banks from engaging in commercial banking activities. • In effect, the Glass-Steagall Act separated the activities of commercial banks from those of the securities industry (The Glass-Steagall Act was repealed in 1999) McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 9 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. What is a bank today • In history a bank has been defined in terms of the: • Economic functions it serves – Banks are involved in transferring funds from savers to borrowers ( Financial Intermediation) • Services it offers to its customers – demand deposit and loan activities • Most people use the word bank to describe a depository institution. • There are depository and non-depository institutions that differ by their primary source of funds - the liability side of their balance sheet. • Depository institutions include – Commercial banks, savings and loans, and credit unions.10 McGraw-Hill/Irwin Bank Management and Financial Services, 7/e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. The Bank Balance Sheet • Today banks are generally those financial institutions that offer the widest range of financial services. • Other financial service providers provide some of the services provided by a banks but not all of them within one institution. • Under US law commercial banks must offer two services to qualify as a bank. They are – demand deposits and commercial loans McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 11 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 12 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. The Bank Balance Sheet Checkable Deposits • Banks get funds from savers and from borrowing in the financial markets. • Financial innovation has reduced the importance of checkable deposits in the day-to-day business of banking. – To entice individuals to put funds into their bank, institutions offer a wide range of services • Liabilities – Checkable deposits – Nontransaction deposits – Borrowings – Bank capital McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 13 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. – In the US, checkable deposits plummeted from more than 60% of total liabilities in the 1960s to around 10% in 2014. – Innovative accounts whose balances are easily transferred to checking accounts change the amount held in traditional deposit accounts. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 14 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Nontransaction Deposits Borrowings • Savings deposits, knows as passbook savings accounts, were popular for may decades, but less so today. • Time deposits are certificates of deposit (CDs) with a fixed maturity. • Borrowing is the second most important source of bank funds. – Large CDs are greater than $100,000 in face value and are negotiable - they can be bought and sold in financial markets. – Large CDs have an important role in bank financing McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 15 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. – Accounts for somewhat less than 20% of bank liabilities. • Banks can borrow by: – Borrowing from the central bank, or – Borrowing from other banks. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 16 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Borrowings Borrowings • In the US, banks with excess reserves will lend their surplus funds to banks that need them though an interbank market called the federal funds market. • Banks finally can borrow using an instrument called a repurchase agreement, or repo. – The lending bank must trust the borrowing bank as these loans are unsecured. • Commercial banks will also borrow from foreign banks. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 17 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. The Bank Balance Sheet • The asset side of the balance sheet shows what banks do with the funds they raise. • Assets are divided into four broad categories, i.e., cash, securities, loans, and other assets – A short-term collateralized loan in which a security is exchanged for cash. – The parties agree to reverse the transaction on a specific future date. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 18 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Cash Items Cash asset are of three types: 1. Reserves - the most important. – Regulations require a certain percent of cash held in reserves. – Include the cash in the bank’s vault, vault cash, and bank’s deposits at the Federal Reserve System. – Cash is the most liquid of the bank’s assets. 2. Cash items in process of collection. – The uncollected funds from checks. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 19 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 20 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Cash Items Securities 3. Balances of the accounts that banks hold at other banks. – Small banks have accounts at large banks - correspondent bank deposits. • • • In January 2010, US banks held more than 10% of their assets in cash. Up until the financial crisis of 20072009, US banks held about 3%. Banks want to minimize cash holdings because they earn less on cash. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 21 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Loans • • secondary reserves McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 22 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Loans Loans are the primary assets of modern commercial banks, accounting for well over one-half of assets. Loans can be divided into five categories: 1. Business loans called commercial and industrial (C&I) loans; 2. Real estate loans, including both home and commercial mortgages and home equity loans; 3. Consumer loans, like auto and credit card loans; 4. Interbank loans; and 5. Other types, including loans for the purchase of other securities. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e • Securities are the second largest component of bank assets. • By law, banks are restricted to securities with low risk. These include Treasury bonds, municipal bonds, and corporate bonds or mortgage-backed securities (MBSs) that receive high grades from rating agencies. • Banks are not allowed to hold stocks or junk bonds. • Securities held by banks are often called 23 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. • Loans are banks’ most important asset class. • Loans are less liquid than securities. • Borrowers sometimes default on loans. • Nonetheless, loans can be profitable because they pay higher interest rates than safe securities • Over time, commercial banks have become more involved in the real estate business. – The rise of the commercial paper market made direct finance more convenient for large firms. – The creation of mortgage-backed securities (MBS) meant that banks could sell the mortgage loans they made, which reduced the risk of illiquid assets. McGraw-Hill/Irwin Bank Management and Financial Services, 7/e 24 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.