Professional Documents
Culture Documents
CH 18
CH 18
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3) Maturity transformation: The transformation of deposits into
loans of a longer maturity.
- Maturity transformation implies a maturity mismatch between the
liabilities and assets on institutions’ balance sheets.
Building Societies:
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- Financial deregulation: The removal of or reduction in legal rules
and regulations governing the activities of financial institutions.
- Types of liabilities:
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5) Capital and other funds: This consist largely of the share capital in
banks.
3) Reverse repos: Gilts or other assets that are purchased under a sale
and repurchase agreement. They become an asset to the
purchaser.
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Longer-term loans:
- Fixed term loan (repayable in instalments over a set number of
years typically, six months to five years).
- Overdraft (Unspecified term).
- Outstanding balances on credit card accounts, and mortgages
(typically for 25 years).
Bank Levy:
÷ balance sheet tax
÷ full rate and half rate
÷ certain liabilities excluded
÷ offset specific highly liquid assets against taxable
liabilities
Liquidity: The ease with which an asset can be converted into cash
without loss.
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Maturity gap: The difference in the average maturity of loans and
deposits.
- For profitability the larger the gap, larger the profits are.
- For liquidity banks will want a relatively small gap: if there is a
sudden withdrawal of deposits, banks will need to be able to call in
enough loans.
Liquidity ratio: The proportion of a bank’s total assets held in liquid form.
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Special Purpose vehicle (SPV): Legal entity created by financial
institutions for conducting specific financial functions, such as bundling
assets together into fixed-interest bonds and selling them.
Capital adequacy ratio (CAR): The ratio of a bank’s capital (reserves and
shares) to its risk-weighted assets.
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Strengthening international regulation of capital adequacy and liquidity:
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Net stable funding ratio: Takes a longer-term view of the funding profile
of banks by focusing on the reliability of liabilities as source of funds,
particularly in circumstances of extreme stress. The NSDR is the ratio of
stable liabilities to assets likely to require funding (i.e., assets where there
is a likelihood of default).
The central bank: Banker to the banks and the government. It oversees
the banking system, implements monetary policy and issues currency.
It issues notes:
The number of banknotes issued by the central banks depends largely on
the demand for notes from general public. If people draw more cash from
their bank accounts, the banks will have to draw more cash from their
balances in the Bank of England (or any other central bank).
Thus, the banking department will have to acquire more notes from the
Issue department, which will simply print more in exchange for extra
government or other securities supplied by the banking department.
It acts as a bank:
- To the government. It keeps two major government accounts: the
‘Exchequer’ and the ‘National Loans Fund’. Taxation and
government spending pass through the Exchequer. Government
borrowing and lending pass through the National Loans Fund.
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exchange market in order to influence the exchange rate of their
currency.
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