• BEO2000 Financial Institutions & Monetary Theory
• Lecture 9: Non-Bank Financial Institutions (NBFIs)
• Primary Source:
• Viney & Phillips , 2015, Ch. 3, Financial Institutions, Instruments and Markets
• Reserve Bank of Australia, 2014, Main Types of Financial Institutions
• Learning Outcomes
• With respect to learning outcomes, you should be able to:
• a. Identify and discuss selected NBFIs;
• b. Outline the financial products and services provided by NBFIs;
• c. Describe NBFIs principal sources and uses of funds.
• Types of NBFIs
• Although a range of NBFIs exist, the lecture will focus on the following:
i. Non-ADI Financial Institutions
i. Money market corporations (e.g. investment bank)
ii. Finance companies
ii. Insurers and Fund Managers
i. Cash management trusts
ii. Superannuation funds
iii. Life insurance companies
iv. General insurance companies
v. Hedge funds
iii. ADIs
i. Building societies
ii. Credit unions
• Money Market Corporations
• Are not authorised banks
i. No depositor base to acquire assets.
Sources of funds
• Fees obtained from OBS advisory services.
• (e.g.) advise clients on raising funds direct from markets.
• Issue securities into international markets (money and capital).
, Uses of funds
• Trading securities for cash or other securities (e.g. market making).
• Lending to large corporations or government.
• Money Market Corporations: Key OBS Activities
• Advise clients on raising funds (how, where and when):
• Provide expertise on the types of securities that can be issued in the
markets
• Advise on associated risks (e.g.) interest rate risk, exchange rate risk,
taxation, and regulatory burdens.
• Advise on balance-sheet restructuring:
• Seeking the most effective way to fund assets to reflect shifts in
interest rate or exchange rate.
• Act as underwriter of new share and debt issues:
• (e.g.) Investment bank guarantees a price for corporation’s
securities and then sells it to the public.
• Mergers and acquisitions (M&A):
• Can be horizontal, vertical, conglomerate
• Finance Companies
• Emerged to circumvent banking regulation restrictions on interest rates and lending.
Sources of funds
• Borrowing primarily from wholesale markets (e.g. issuing securities in the market).
• Borrowings from related corporations and banks.
Uses of funds
• Consumer loans.
• Business loans (e.g. small to medium sized businesses).
• In Class Group Activity: Non-ADIs
i. Why have finance companies dwindled in numbers?
ii. Explain the concept of balance-sheet restructuring and provide an example.
iii. Why are investment banks pro-active in initiating potential mergers and acquisitions ideas to
their clients?
• Managed Funds
• Investment vehicle for investing the pooled savings of individuals in various asset classes.
– (e.g.) Domestic and international money and capital markets.
• Lecture 9: Non-Bank Financial Institutions (NBFIs)
• Primary Source:
• Viney & Phillips , 2015, Ch. 3, Financial Institutions, Instruments and Markets
• Reserve Bank of Australia, 2014, Main Types of Financial Institutions
• Learning Outcomes
• With respect to learning outcomes, you should be able to:
• a. Identify and discuss selected NBFIs;
• b. Outline the financial products and services provided by NBFIs;
• c. Describe NBFIs principal sources and uses of funds.
• Types of NBFIs
• Although a range of NBFIs exist, the lecture will focus on the following:
i. Non-ADI Financial Institutions
i. Money market corporations (e.g. investment bank)
ii. Finance companies
ii. Insurers and Fund Managers
i. Cash management trusts
ii. Superannuation funds
iii. Life insurance companies
iv. General insurance companies
v. Hedge funds
iii. ADIs
i. Building societies
ii. Credit unions
• Money Market Corporations
• Are not authorised banks
i. No depositor base to acquire assets.
Sources of funds
• Fees obtained from OBS advisory services.
• (e.g.) advise clients on raising funds direct from markets.
• Issue securities into international markets (money and capital).
, Uses of funds
• Trading securities for cash or other securities (e.g. market making).
• Lending to large corporations or government.
• Money Market Corporations: Key OBS Activities
• Advise clients on raising funds (how, where and when):
• Provide expertise on the types of securities that can be issued in the
markets
• Advise on associated risks (e.g.) interest rate risk, exchange rate risk,
taxation, and regulatory burdens.
• Advise on balance-sheet restructuring:
• Seeking the most effective way to fund assets to reflect shifts in
interest rate or exchange rate.
• Act as underwriter of new share and debt issues:
• (e.g.) Investment bank guarantees a price for corporation’s
securities and then sells it to the public.
• Mergers and acquisitions (M&A):
• Can be horizontal, vertical, conglomerate
• Finance Companies
• Emerged to circumvent banking regulation restrictions on interest rates and lending.
Sources of funds
• Borrowing primarily from wholesale markets (e.g. issuing securities in the market).
• Borrowings from related corporations and banks.
Uses of funds
• Consumer loans.
• Business loans (e.g. small to medium sized businesses).
• In Class Group Activity: Non-ADIs
i. Why have finance companies dwindled in numbers?
ii. Explain the concept of balance-sheet restructuring and provide an example.
iii. Why are investment banks pro-active in initiating potential mergers and acquisitions ideas to
their clients?
• Managed Funds
• Investment vehicle for investing the pooled savings of individuals in various asset classes.
– (e.g.) Domestic and international money and capital markets.
