Industrial and Investment Banking
Q 1 . GENERAL CONCEPTS OF BANK MANAGEMENT
The typical principles of bank administration include;
Fluid management- consists of maintaining advantage that can be quickly converted into funds. The cash provides the purpose of depositor withdrawal possibly from checking or savings account or investigations written by the depositor to other banking companies. Liquidity administration make sure funds is available after depositors demand to pull away or payment.
To keep enough cash readily available, the bank must engage in fluid management techniques. A financial institution needs to hold enough excess reserves that may be able to fulfill all depositors need. This kind of shield the financial institution from extra cost in meeting the depositors want. Such extra costs include the cost of asking for from other banking institutions, sale of securities, calling in loans and resulting in borrowing from federal government bank.
Asset management; a bank have to manage the asset is effectively in order to maximize the profits. This may mainly completed through, obtaining liquid assets that contain acceptable low-level of risk such authorities securities, diversifying its asset holding portfolio as risk asset management strategy, issuing loans containing higher interest to borrowers who happen to be deemed safe, last the financial institution s satisfy to maintain enough reserve in order to meet its depositors need with out resulting to credit in order to save about cost of credit.
Liability supervision with the elevated innovation and changes in operation of banks operation a banks must ensure the cost of funds is minimized. This assures a bank will be able to fulfill its obligation as the fall due.
Capital adequacy management-the manager need to decide the number of capital the financial institution should keep and then find the needed capital in thought of the regulation existing on the market. Capital is important in traditional bank as is inhibits failures and also influence earnings on prevalent stock holders.
Q. 2 Discuss the techniques of managing credit risk and interest rates risk
There are various methods used by banking companies to manage credit risk that they include,
Prescreening and bank loan monitoring
Banks usually gathers information associated with their potential clients. The information gathers helps to assess the borrowers sort out the customer either as safe debtor or high-risk borrower from this event the lender is able to control the credit rating risk
Yet another way is continuously monitor the borrower after the lender include issued loan, this aid to solve the situation of moral risk where the debtor under have more risky venture compared to the one the amount of money was took out for.
The other manage credit risk business of the extended customer marriage this helps the banks to collect information about the borrower asses the entire credit worthiness of the borrower.
Third the bank may manage the credit risk by inserting stringent state on the use of the obtained funds. In this instance the bank concerns restrictive contrat that prohibit the customer from engaging in risky activities.
Fourth a bank need to ask for guarantee, in which it would recover the amount of money in the event the debtor fail to pay back the amount took out.
Fifth one more credit managing tool is definitely credit rationing. In this case the lender refuses to lend the customer funds even if they are prepared and capable to pay high level of interest prices.
Right now let us switch our curiosity to evaluate to manage the eye rate risk, interest rates are incredibly volatile which means bank has to appropriately hedge against damage emanating through the changes rates of interest. Therefore , the financial institution needs to carry out a gap and duration analysis, in this case tenderness of earnings to pursuits, where the liabilities which are delicate to changes in the rate interest are subtracted to from resources that are attentive to changes in the interest rates in space analysis.
Queen 3. Talk about the off-balance sheet actions...
References: Lansky, M. (2010). The global crisis. Oxford: Blackwell Publishing Limited.