Commercial Bank Management (DOC download)

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					2012


   COMMERCIAL BANK
   MANAGEMENT
   Commercial Banking and Questioner
   The numbers of financial instruments are available for banks to
   add to their securities portfolio. Each financial instrument has
   different characteristics with regard to risk, sensitivity to
   inflation, and sensitivity to shifting government policies and
   economic conditions. For better understanding of those
   instruments, we can divide them into two groups: Money Market
   Instruments: instruments, which has maturities less than one
   year. low risk and high marketability are two distinct
   characteristics. Capital Market Instruments: instruments, which
   has maturities beyond one year. Higher expected rate of return
   and capital gain potentials, are two distinct characteristics.




                                                               ASUS
                                            [Type the company name]
                                                          4/30/2012
April 30, 2012
                 COMMERCIAL BANK MANAGEMENT




                     Commercial Bank Management




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                    COMMERCIAL BANK MANAGEMENT


                 The numbers of financial instruments are available for banks to add to their securities portfolio. Each
                 financial instrument has different characteristics with regard to risk, sensitivity to inflation, and sensitivity
                 to shifting government policies and economic conditions. For better understanding of those instruments,
                 we can divide them into two groups: Money Market Instruments: instruments, which has maturities less
                 than one year. low risk and high marketability are two distinct characteristics. Capital Market
                 Instruments: instruments, which has maturities beyond one year. Higher expected rate of return and
                 capital gain potentials, are two distinct characteristics.

                 Popular Money Market Instruments

                                      1. Treasury Bills

                                      2. Short-term treasury Notes & Bonds.

                                      3. Federal Agency Securities (for USA only)

                                      4. Certificates of Deposit

                                      5. International Eurocurrency Deposits.

                                      6. Banker’s Acceptances.

                                      7. Commercial Paper.

                                      8. Short-term Municipal Obligations

                 Popular Capital Market Instruments

                                      1. Long-term Treasury Notes & Bonds.

                                      2. Municipal Notes & Bonds

                                      3. Corporate Notes & Bonds

                                      4. Common stock & Preferred Stock

                 Other Investment Instruments Developed Recently

                                       Structured Notes

                                       Securitized Assets.

                                       Stripped Securities




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                 Structured Notes:

                 Structured notes usually are packaged investments assembled by security dealers that offer
                 customers flexible yields in order to protect their customers' investments against losses due to
                 inflation and changing interest rates. Most structured notes are based upon government or federal
                 agency securities.

                 Securitized Assets:

                 Securitized assets are loans that are placed in a pool and, as the loans generate interest and
                 principal income, that income is passed on to the holders of securities representing an interest in
                 the loan pool. These loan-backed securities are attractive to many banks because of their higher
                 yields and frequent federal guarantees (in the case, for example, of most home-mortgage backed
                 securities) as well as their relatively high liquidity and marketability

                 Stripped Securities:

                 Stripped securities consist of either principal payments or interest payments from a debt security.
                 The expected cash flow from a Treasury bond or mortgage-backed security is separated into a
                 stream of principal payments and a stream of interest payments, each of which may be sold as a
                 separate security maturing on the day the payment is due. Claims against only the principal
                 payments from a security are called PO (Principal Only) securities, while claims against only the
                 stream of interest payments promised by a security are referred to as IO (interest only) securities.
                 Some of these stripped payments are highly sensitive in their value to changes in interest rates.



                 Describe the Crossroads Accounts on a Bank’s Balance Sheet.
                 Investments also referred to as the crossroads accounts. Investments literally stand between cash,
                 loans and deposits.

                 When cash is low, some investments will be sold in order to raise more cash. On the other hand,
                 if cash is too high, some of the excess cash will be placed in investment securities.

                 If loan demand is weak, investment will rise in order to provide more earning assets and
                 maintain profitability. But if loan demand is strong, some investments will be sold to
                 accommodate the heavy loan demand.

                 When deposits are not growing fast enough, some investments securities will be used as
                 collateral to borrow non-deposit funds.




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                 Why Banks Face Significant Liquidity Problems?
                 For the banks and other financial institutions, the significant exposure to liquidity pressures arises from
                 several sources-

                      Imbalances between maturity dates attached to their assets and the maturity dates of their
                       liabilities.
                      Because of maturity mismatch situation, the bank holds an unusually high proportion of liabilities
                       subject to immediate payment, such as demand deposit, NOW accounts, and money markets
                       borrowings.

                      Sensitivity to Changes in Interest Rates. When interest rates rise, for example, some depositors of
                       banks will withdraw their funds, loan customers may postpone new loan requests; speed up their
                       drawings from line of credit. Changing interest rates affect both customer demands for deposits
                       and for loan.

                      Movement in market interest rates affect the market values of assets the bank or other financial
                       firm may need to sell in order raise additional liquid funds, and they directly affect the cost of
                       borrowing in the money market.




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                    COMMERCIAL BANK MANAGEMENT


                 Describe Strategies for Liquidity Managers Problem?
                 Several board strategies are developed for dealing with liquidity problem-

                     Asset Liquidity Management or Asset Conversion Strategy (providing liquidity from
                      assets)

                     Borrowed Liquidity or Liability Management Strategy (relying on borrowed liquidity to
                      meet cash demands)

                     Balanced Liquidity Strategy (assets and liability)




                 What is Liability management?
                     The Bank buys funds in order to satisfy loan requests and reserve requirements

                     It is an Interest-Sensitive Approach to raising bank funds

                     It is Flexible – the bank can decide exactly how much they need and for how long

                     The control mechanism to regulate incoming funds is the price of funds



                 What is Investment Management?
                 Investment Management is both an art and a science. It’s an art in the sense that professional
                 investment managers are responsible for securing portfolio return against the backdrop of an
                 often unpredictable and illogical marketplace influenced by the visceral responses of emotional
                 investors. Just as importantly, investment management is the science of controlling and
                 mitigating risk while seeking to optimize portfolio returns. There should always be a process to
                 managing money, and a credible investment manager will always have a stringent investment
                 philosophy with a disciplined and consistent process for evaluating risk. The most
                 successful investment managers will balance both risk and return, not trading one for the other.
                 According to Aswath Damodaran of the Stern Business School at NYU, an investment
                 management process includes six different aspects. They include:




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                 How is a discount window loan from the Federal Reserve secure?
                 A Bank with immediate reserve needs can borrow from the Federal Reserve, through its discount
                 window.

                 Three types of Federal Reserve loans are available from the discount window:

                    1. Primary Credit: loans available for very short terms to depository institutions in sound
                       financial conditions. Primary credit carries an interest rate slightly above the Federal
                       funds interest rate. User of the primary credit does not have to show that they have
                       exhausted other sources of funds before asking the Fed for a loan.
                    2. Secondary Credit: loans available at the higher interest rate to depository institutions not
                       qualifying for the primary credit. These loans are subject to monitoring by the Federal
                       Reserve banks to make sure the borrower is not taking on excessive risk. The interest rate
                       on secondary credit normally is set 50 basis points above the primary credit rate.

                    3. Seasonal Credit: loans covering longer time periods than primary credit for small and
                       medium sized depository institutions experiencing seasonal swings in their deposits and
                       loans.


                 What roles do investments play in the Management of a bank?
                 Put simply, investment banks provide a range of financial services to companies, governments
                 and wealthy individuals. One of our main roles is to help clients raise capital by issuing and
                 selling securities in the capital markets. We also provide expert advice on mergers and
                 acquisitions, as well as helping clients manage their financial risks.

                 Investment banking is a dynamic, fast-moving and unpredictable environment where new
                 products, new deals, new risks and new opportunities emerge with astonishing speed. To
                 succeed, you’ll need to be ambitious, intelligent and adaptable. It’s also essential that you have a
                 strong academic record as well as excellent numeric, verbal reasoning and analytical skills.

                 Investment banks offer challenging and rewarding opportunities in a wide range of business
                 areas. Here’s a brief overview of the main areas you could work in:

                 Investment Banking

                 Teams in this division work with corporate and government clients seeking to raise capital in the
                 markets. We also help clients manage their exposure to risk.

                 Trading

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                 Operating in a fast-paced and challenging environment, our trading teams buy and sell a wide
                 variety of financial instruments such as stocks, bonds and derivatives. As well as actually
                 executing deals, traders manage our clients’ risk and help them to develop long-term trading
                 strategies.

                 Sales

                 Providing a link between clients, traders and researchers, our salespeople ensure each client is
                 kept abreast of all the latest investment and trading opportunities. It’s a role for skilled
                 relationship managers who are able to explain complex financial products simply.

                 Research

                 If you thrive on intellectually challenging work, a career in research could be for you. Our
                 research teams provide the insight and intelligence that allows the banks to operate effectively in
                 complex financial markets.

                 Technology

                 To maintain their competitive advantage, it’s vital that the banks have access to the best
                 technology available. Our IT teams make sure they have it, developing and managing cutting-
                 edge trading, analytical, operations and reporting systems.

                 Operations

                 The Operations department plays a key role in the smooth running of the bank. Their main
                 responsibility is to make sure that all trades are processed accurately and efficiently.




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Description: The numbers of financial instruments are available for banks to add to their securities portfolio. Each financial instrument has different characteristics with regard to risk, sensitivity to inflation, and sensitivity to shifting government policies and economic conditions. For better understanding of those instruments, we can divide them into two groups: Money Market Instruments: instruments, which has maturities less than one year. low risk and high marketability are two distinct characteristics. Capital Market Instruments: instruments, which has maturities beyond one year. Higher expected rate of return and capital gain potentials, are two distinct characteristics.