AC942 Modern Banking

1
AC942 Modern Banking

• Dr. Paul Hamalainen
• pkhamal_at_essex.ac.uk
• Office Hours
• Monday 2-4
• Tuesday 9-10

2
Module Aims

• Appraise the role of banks in a modern society.
• Understand why banks need regulation and assess
  the regulatory responses in light of the recent
  credit crisis.
• Evaluate the impact of the main environmental
  forces of change on the strategies and
  performance of modern global banks.
• Evaluate critically the empirical evidence
  related to the industrial structure of banking
  and efficiency.

3
Key concepts discussed

• Structure and environment of banking
• Banking regulation
• International banking
• Bank failures and crises
• Banking efficiency
• Competition in banking markets

4
Teaching Delivery and Assessment

• 10 two-hour lectures
• 50 exam (two-hour)
• 50 one-hour in class test (Week 23)
• Additional resources
• reading list / handouts

5
Lecture 1 Banks in the Modern Financial System

• Aims of the lecture
• Explain the role of the Financial System
• why do we need financial markets?
• why do we need financial intermediaries?
• what are types and functions of financial
  intermediaries?
• Developments in modern banking

6
Two-sector economy
7
Role of the Financial System

• Intermediary between surplus and deficit units -
  allocation of funds to their most efficient use
  amongst competing claims.
• Payment mechanism.

8
Financial System
9
Types of Financial Intermediaries

• Bank financial intermediaries - Retail and
  investment banks.
• Non-bank financial intermediaries (NBFIs)
• Life insurance and assurance
• Pension funds
• Investment and unit trusts

10
Classification of financial intermediaries
11
Role of Financial Intermediaries

• assist in the transfer of funds from surplus
  agents to deficit agents.
• Asset transformation
• Risk Transformation
• Maturity Transformation
• Size transformation
• Liquidity Provision
• Reduction in transaction and information costs

12
Benefits of financial intermediaries

• Surplus Units
• Deficit Units
• Society as a whole
• more efficient utilization of funds within an
  economy
• higher level of borrowing and lending can be
  undertaken
• improvement in the availability of funds to
  higher-risk projects

13
Role of Financial Markets

• Liquidity
• Price discovery process
• Reduces search and information costs
• Transfer of risk
• Discipline function

14
Types of banking activities

• Commercial banking
• Relationship banking
• Investment Banking
• Advising on Mergers Acquisitions
• Underwriting shares
• Aircraft leasing
• Trading securities
• Asset Management (managing pension funds)
• Trading
• Private Banking

15
Types of banking activities
16
Developments in modern banking

• Traditional versus Modern Banking
• Financial deregulation
• International Banking/Global Banking
• Financial Innovation