Professional Documents
Culture Documents
SD =Supply of Deposit
IL
I*
ID
Principles of Intermediation
Principles of Liquidity
Principles Profitability
Principles Solvency
Principle of Trust
1.Denomination Intermediation
- Small amount of savings from individuals and others are pooled so
as to give loans of varying size
2. Default Risk intermediation
- Willingness to give loans to risky borrowers without hurting the
returns to savers
3. Maturity intermediation
- Ability to create loans whose maturities may mismatch with the
deposit
maturity profile
4. Liquidity intermediation
- Claims from savers that are highly liquid while loans to borrowers
are relatively less liquid
5. Information intermediation
- Ability to gather and process information from the financial
marketplace far more effectively than the individual saver
6. Currency intermediation
- Ability to lend cross-currency
Banking Service As a
Product
Price
Supply of Services
P1
Cost of intermediationSearch
Verification
Monitoring
Enforcement
Other transaction cost
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Payment Services
Two major Risks:
Liquidity RiskSettlement is not made at expected time
So that Asset/ Liabilities are not transferred from one agent
To another via the system.
Operational RiskArising from the threat of operational Breakdowns,
Preventing timely settlement
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System
Function
Umbrella organizaion1984
Made up of
BACS,CCCL,CHAPS
FEDWIRE, USA
Forex transfer
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Financial activities under Universal banking areIntermediation and liquidity via deposits & loans,
by product is the payment system.
Trading of financial instrumentsbonds, equity, derivatives , currency.
Proprietary trading- in own books
Stock broking
Corporate advisory services- M&A
Investment Management
Insurance.
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Commercial & Investment bankOriginated In USA- Glass Steagall section of banking Act, 1933
Commercial banks are not allowed to Underwrite securities
Investment banks are not to offer banking services.
Modern Investment banks engage inUnderwriting
M&A
Trading of financial instruments( bonds, equity, derivatives , Proprietary)
Fund management
Consultancy
Global Custody
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Is investment bank a
bank?
Investment banks act as intermediary,
but do not accept deposit and facilitate payment systems.
But they contribute to increased liquidity to the system
by arranging new form of finance for a corporation.
This is different from meeting liquid demands of depositors.
Hence they are not banks in true sense.
Goldman Sachs accept core /traditional deposit from HNIs
Merrill Lynch, in 2000, approved to mobilize FDIC
Insured deposits by FED.
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Financial Conglomerate
Briault (2000) defined a financial conglomerate
as a firm that undertakes at least two of the five
Financial activities:Intermediary / payments
Securities
Corporate Finance
Fund management
Advising & Selling investment product to retail customer.
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THANKS
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