ECONOMY IN BANKS

Economy in banks

Economy in banks

Introduction

Banks have traditionally played the key role in the financial system by acting as financial intermediaries between ultimate savers and borrowers. As asset transformers, they have accepted deposits with one set of characteristics and created assets with a different set; in particular, they have engaged in maturity transformation with debt contracts on both sides of the balance sheet. They have also been the central mechanism within the payments system. For these and other reasons (notably a potential danger of deposit which may cause solvent banks to become insolvent, and the systemic consequences that could thereby accrue), banks have traditionally been regarded as 'special' within the financial system. For the same reasons they have also been subject to more intensive regulation than other types of financial institution. (Zardkoohi 2000 10)

The nature of what a bank does has changed radically over the past few years, and it will change further in the years ahead. The type of institutions conducting banking business has also changed. With respect to the first issue, banks conduct a much wider range of business than simply taking in deposits and making loans (their traditional financial intermediation business). Banks have become financial services firms, and in many countries off-balance sheet income of banks exceeds income earned from traditional financial intermediation business. It is no longer clear precisely what a bank is, what business it conducts, or what should define appropriate business for a bank. What a bank is is no longer clearly-defined. (Van 2003 14)

Credit Cooperative: Micro Finance

The most remarkable feature of micro credit is that it is free from collateral security. But however we know that micro credit is no charity the security of repayment is substituted by group guarantees, compensatory savings and peer pressure.

Access to repeat and larger loans: Each time the borrower makes full repayment of his/her loan they are eligible to avail the facility of repeat loans and can take credit of higher amounts. (Van 2003 14)

Loan period: The loan is usually short term in nature generally starting from1 year and may extend to a period of 3 years. Repayment: Options available for weekly, biweekly or monthly repayment of the loan. (Rhoades 2002 91)

Securitization: Growth Of Use Of Cds

Credit default swaps are being used on a rapidly growing number of asset securitization deals, a performance matched only by the innovations that are emerging to make the most of the market's growth. However, one major challenge lies ahead for the CDS business: luring a more diverse group of players into the market. (Llewellyn 2002 14)

The notional outstanding on CDS-enhanced ABS deals, a market that kicked off in 2005, is about $150 billion. Some market players expect that amount to double by 2007. (Ferrier 2001 229)

Bad Lending Leading To The East Asian Crisis 1990

The analysis extends empirically, and complements the macro leverage argument of Veneroso and Wade by reviewing the financial profile and performance of corporations. It concludes that there were serious problems at the micro level - excess leverage, and poor ...