U14 HANDOUT E4BS Lecturer: Nguyen Thao Trang

UNIT 14: BANKING (HANDOUT)

AIMS
- Consider banking products and services and different types of banks.
- Discuss the subprime crisis and microfinance
Subprime /ˌsʌbˈpraɪm/ (adj): used to describe the practice of lending money, especially to buy a
house, to people who may not be able to pay it back.
Crisis /ˈkraɪsɪs/ (n): a situation that is extremely difficult or dangerous, when there are many
problems.
Microfinance /ˈmaɪkrəʊˌfaɪnæns/ (n): the activity or business of providing financial services,
such as small loans, to poor people or new businesses that cannot use traditional banking
services, usually in developing countries.

LEAD-IN
Which of the following banking products or services do you find the most useful or
necessary? (textbook/p. 73)
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READING: BANKS AND FINANCIAL INSTITUTIONS

deposit
 depositor
bond

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U14 HANDOUT E4BS Lecturer: Nguyen Thao Trang

takeover bid

stockbrokking

portfolio

repeal

conglomerate

LISTENING 1: COMMERCIAL BANKING

Listen to Tony Ramos talking about investment and commercial banking and answer the
questions.
1. How does Tony Ramos describe commercial banking?
‘ A kind of ........................ ...................... ......................
2. What was Tony Ramos’s job before he moved into recruitment?
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3. What does he say commercial banking actually consists of? Fill in the gaps.

TAPESCRIPT (Track 30)

I think there is a real kind of (1) ....................... around kind of the world of
(2) ....................... ....................... and kind of what it (3) ........................ I think also as well I
think (4) ....................... ......................., and I guess I would say this as a previous
(5) ....................... ......................., I think if you actually and when you do talk to students and I
talk them to about what the commercial banking role is and I talk to them about the fact that “...
you’re kind of working in a (6) ........................ ........................, you’re working you know with,
like, (7) ....................... ......................., kind of what the day-to-day job consists of, actually
(8) ....................... ....................... ....................... people with their businesses,
(9) ....................... ....................... ....................... those businesses, seeing those

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U14 HANDOUT E4BS Lecturer: Nguyen Thao Trang

(10) ....................... .......................” and the kind of (11) ....................... and the
(12) ....................... ....................... that provides to you, you actually do see their eyes kind of
light up and open up, because they kind of think, oh, I actually I didn’t think it was about that, I
actually thought it was kind of sitting in front of a computer looking at (13) ......................., I
think it was doing a lot of (14) ......................., it seemed quite (15) .......................
and ....................... to me ...
4. What does he say students wrongly think it consists of?
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New vocabulary
a belief or opinion, often held by many people and based on how things
seem.
someone who starts their own business, especially when this involves
seeing a new opportunity.
the feeling of pleasure and achievement that you experience in your job
when you know that your work is worth doing, or the degree to which
your work gives you this feeling.
an electronic document in which information is arranged in rows and
columns and can be used to do financial calculations and plans.
not interesting or exciting in any way.

old-fashioned, formal, and boring.

READING: THE SUBPRIME CRISIS AND THE CREDIT CRUNCH

New vocabulary and phrases
credit rating

default

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U14 HANDOUT E4BS Lecturer: Nguyen Thao Trang

mortgage

collateral

pool

investment fund

hedge fund

pension fund

mutual fund

underlying

write off something

massive

Comprehension
1. Who are “subprime” borrowers?
2. What were two financial products that the institutions had issued the mortgage?
3. What is MBS?
4. What is CDO?
5. Who bought MBSs and CDO?
6. The process “financial institutions bought MBs and CDO” is called .................?
7. What is securitization?
8. What is a credit crisis or credit crunch?
Your answer:

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U14 HANDOUT E4BS Lecturer: Nguyen Thao Trang

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Key takeaways
Mortgage-backed securities (MBS):
o Mortgage-backed securities (MBS) turn a bank into an intermediary between the
homebuyer and the investment industry.
o The bank handles the loans and then sells them at a discount to be packaged as MBSs to
investors as a type of collateralized bond.
o For the investor, an MBS is as safe as the mortgage loans that back it up.
Collateralized debt obligations (CDO)
o A collateralized debt obligation is a complex structured finance product that is backed by
a pool of loans and other assets.
o These underlying assets serve as collateral if the loan goes into default.
o Though risky and not for all investors, CDOs are a viable tool for shifting risk and
freeing up capital.

DISCUSSION
Who do you think was responsible for the subprime crisis? What did the financial industry
do wrong?
Further reading: Who was to blame for the subprime crisis?
https://www.investopedia.com/articles/07/subprime-blame.asp
Suggestion: central banks (for lowering their interest rate)

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U14 HANDOUT E4BS Lecturer: Nguyen Thao Trang

Lenders (for giving low-income groups the possibility to own their houses)
Homebuyers (for taking risks by buying houses they could not afford)
Your answer:
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LISTENING 2: MICROFINANCE
Listen to Anna-Kim Huyn-Seung talking about microfinance and answer the questions.
1. In microfinance, what replaces normal financial collateral?
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2. What is the ‘risk-management tool’ that Anna-Kim mentioned?
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3. Why is lending money to poor people not necessarily as risky as it sounds?
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4. Why is lending money to poor people not necessarily as risky as it sounds?
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5. In which three continents are there successful microfinance schemes?
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TAPESCRIPT (Track 1.31)

Microfinance schemes started with several (1) .................... and social (2) ...................., for
example, Grameen Bank in Bangladesh. They (3) .................... very small loans to poor people,
often without (4) .................... .................... But they use some kind of different collateral,

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U14 HANDOUT E4BS Lecturer: Nguyen Thao Trang

sometimes it can be (5) .................... ...................., so they create a group of people and within a
group of people help each other to (6) .................... the loan, but it’s usually a very small amount
of money, and from the bank’s point of view it actually provides a (7) .................... risk-
management tool. Of course, distributing loans to poor people sounds very (8) ...................., but
because we are talking about a large number of people, with a very small amount of money, it
actually creates a very nice (9) .................... in which the risk can be (10) ....................
NGOs and social enterprises proved that these kinds of schemes can be (11) ...................., and
the poor people are actually repaying the loans, so now the (12) .................... .................... like
Citibank and Barclays are taking part in these schemes, not for the purpose of
(13) .................... ............... only, they are actually doing it as part of their business. They are
developing their (14) ................................. and .................... products in (15) ....................
countries. It seems that microfinance is doing really well particularly in Bangladesh and part of
India, and there are some positive cases in Latin America and Africa too.

New vocabulary
an officially organized plan or system.
non-governmental organization
an organization that tries to achieve social or political aims but is not
controlled by a government
an organization, a company, or a business.
a collection of different investments that are owned by a particular person
or organization.
used to describe a business or system that is able to grow or to be made
larger.
a very small amount of money lent to a person or group, especially in
order to make it possible for people in poor countries to start businesses.