BANK MANAGEMENT
PROF. M. LAMERS
,LECTURE 1: WHAT ARE BANKS?
WHAT ARE BANKS
What do we use banks for?
o Save our money: store of wealth (savings accounts)
o Use our money: payment methods e.g. checking account, debit/credit card, Bancontact, mobile banking, currency exchange, …
o Get loans e.g. mortgage, personal loan, car loan, student loan, business loan, …
o Invest e.g. term accounts, bonds, equities, pension saving, funds, …
Via bank or associated entity
o Insurance e.g. car insurance, life insurance, family insurance, travel insurance, …
Definition bank according to ChatGPT: “Banks are financial institutions that play a crucial role in the modern economy by
providing a wide range of financial services to individuals, businesses, and governments.”
Balance sheets and income statements usually tell how a business works.
o Assets = what you own (left on the balance)
o Liabilities = what you owe (right on the balance)
o Equity = difference between assets and liabilities
ð Banks (and other financial institutions) have a different asset and liability structure compared to other firms! E.g.
banks do not have an inventory
BALANCE SHEET
Financial liabilities
o Deposits (main source of funding)
• Sign deposits: no interest rates, demandable on sight
• Savings deposits: low interest rates, demandable
• Term deposits: (generally) higher interest rates, fixed term
• Wholesale/corporate deposits
• Interbank deposits
o Bonds
o Subordinated debt
o (Equity capital) ⇾ Banks typically have less equity compared to other firms
• Share capital
• Retained earning
• (Subordinated debt)
ð The equity capital buffer is quite small for banks (around 5-6%)
* Defence against non-performing assets
* Regulation (Basel III) mainly concerned with maintaining high enough equity buffers
Financial assets
o Cash
o Loans
• Mortgages
• Consumer credit
• Business loans
• Credit lines
• Interbank loans
• (Local) government loans
o Securities (incl. govt)
• Some very liquid and not so risky
2
, * Treasury notes (< 10 years)
* Treasury bonds (> 10 years)
• Some more risky, but also higher return
* Corporate bonds
* Equities
* Trading assets
o Fixed assets – Branch network
• ‘Brick and mortar’
• Role used to attract new clients, wire transfer money
• Less necessary due to internet banking
• More based on giving advice e.g. about mortgages
• In combination with fixed high costs, banks are closing down branches
BANK INCOME STATEMENT
Income
o Lending
o Investing in other financial assets yielding a return
o Providing services
Expenses
o Funding costs (deposits and non-deposit liabilities)
o Personnel costs
o Costs of running branch network
o Etc.
Decomposing
o Income:
• Net interest income is the largest part of total income
• Other types of income: trading, insurance activities, fee income e.g. private banking, wealth management
o Costs: operational (personnel), reserves (for bad loans)
WHAT DIFFERENT TYPES OF BANKS ARE THERE?
TYPES OF BANKS
Depending on which business/funding is dominant, Fls (= funding for lending schemes) can be divided into different business
models ⇾ Saunders and Cornett define a few:
o Depository institutions
• High proportion of funding from (retail) deposits, and main source of income real estate loans
• Commercial banks, savings banks, credit unions
o Finance companies
• Do not accept deposits, but rely on short- and long-term debt as source of funds
• Often give more risky (personal) loans
o Securities firms
• Investment banks (originate, underwrite, distribute new securities)
• Brokerage firms (purchase, sale of existing securities)
Types
o Retail banks: consumer deposits, consumer loans, mortgages, small business loans (checking/savings accounts,
overdrafts, loans, credit & debit cards, safe deposit boxes)
3
, o Wholesale bank (corporate bank): deposits/loans to large companies, governments, pension funds, etc.
o Investment bank/brokerage: fee/commission generating business (asset management, M&A, securities trading, raising
capital, securities underwriting)
o Universal bank: offer all the above (one-stop-shopping)
TYPES OF BANKS IN EUROPE
Universal banks e.g. BNP Paribas, Société Générale, Credit Agricole, KBC, Deutsche Bank, Barclays, HSCB, RBS
o Allowed in EU since Second Bank Directive (1989), in US since Financial Services Modernization Act (1999)
o Large listed banks, offer brokerage services (no real investment banks)
Commercial (retail) banks: mainly smaller, often non-listed e.g. Sparkassen in Germany, Argenta, Triodos
Wholesale banks e.g. Landesbanken in Germany, Lloyds, Commerzbank
BANKS IN BELGIUM
Leading banks
o BNP Paribas/Fortis, KBC, Belfius, ING Belgium
o All offer retail/wholesale banking, insurance, asset/wealth management ⇾ Sometimes via subsidiaries/partnerships e.g.
ING and Nationale Nederlanden, Belfius and Candriam
Others
o Retail banks e.g. Argenta, Beobank, Crelan/Axa, Europabank, Triodos, VDK bank
o Finance companies (personal loan/consumer credit) e.g. Cofidis, Fimaser (Carrefour Finance)
o Branches of foreign banks e.g. Bank of New York Mellon, Deutsche Bank, Banco Santander
RECAP
Key question: What are banks?
o Banks are financial service providers
o Variety of business models
• Retail bank
• Wholesale bank
• Investment bank/brokerage
• Universal bank
ð But more often they offer two or more types of services: “A continuum rather than a discrete set of strategies”
LECTURE 2: WHY DO BANKS EXIST?
WHY DO BANKS (OR OTHER FINANCIAL INTERMEDIRIES) EXIST?
FINANCIAL INTERMEDIATION
Allocation of resources from those with surpluses (and
no use) to those with need and productive use ⇾ Can
be done directly (via stock/bond markets) or indirectly
via banks
4
PROF. M. LAMERS
,LECTURE 1: WHAT ARE BANKS?
WHAT ARE BANKS
What do we use banks for?
o Save our money: store of wealth (savings accounts)
o Use our money: payment methods e.g. checking account, debit/credit card, Bancontact, mobile banking, currency exchange, …
o Get loans e.g. mortgage, personal loan, car loan, student loan, business loan, …
o Invest e.g. term accounts, bonds, equities, pension saving, funds, …
Via bank or associated entity
o Insurance e.g. car insurance, life insurance, family insurance, travel insurance, …
Definition bank according to ChatGPT: “Banks are financial institutions that play a crucial role in the modern economy by
providing a wide range of financial services to individuals, businesses, and governments.”
Balance sheets and income statements usually tell how a business works.
o Assets = what you own (left on the balance)
o Liabilities = what you owe (right on the balance)
o Equity = difference between assets and liabilities
ð Banks (and other financial institutions) have a different asset and liability structure compared to other firms! E.g.
banks do not have an inventory
BALANCE SHEET
Financial liabilities
o Deposits (main source of funding)
• Sign deposits: no interest rates, demandable on sight
• Savings deposits: low interest rates, demandable
• Term deposits: (generally) higher interest rates, fixed term
• Wholesale/corporate deposits
• Interbank deposits
o Bonds
o Subordinated debt
o (Equity capital) ⇾ Banks typically have less equity compared to other firms
• Share capital
• Retained earning
• (Subordinated debt)
ð The equity capital buffer is quite small for banks (around 5-6%)
* Defence against non-performing assets
* Regulation (Basel III) mainly concerned with maintaining high enough equity buffers
Financial assets
o Cash
o Loans
• Mortgages
• Consumer credit
• Business loans
• Credit lines
• Interbank loans
• (Local) government loans
o Securities (incl. govt)
• Some very liquid and not so risky
2
, * Treasury notes (< 10 years)
* Treasury bonds (> 10 years)
• Some more risky, but also higher return
* Corporate bonds
* Equities
* Trading assets
o Fixed assets – Branch network
• ‘Brick and mortar’
• Role used to attract new clients, wire transfer money
• Less necessary due to internet banking
• More based on giving advice e.g. about mortgages
• In combination with fixed high costs, banks are closing down branches
BANK INCOME STATEMENT
Income
o Lending
o Investing in other financial assets yielding a return
o Providing services
Expenses
o Funding costs (deposits and non-deposit liabilities)
o Personnel costs
o Costs of running branch network
o Etc.
Decomposing
o Income:
• Net interest income is the largest part of total income
• Other types of income: trading, insurance activities, fee income e.g. private banking, wealth management
o Costs: operational (personnel), reserves (for bad loans)
WHAT DIFFERENT TYPES OF BANKS ARE THERE?
TYPES OF BANKS
Depending on which business/funding is dominant, Fls (= funding for lending schemes) can be divided into different business
models ⇾ Saunders and Cornett define a few:
o Depository institutions
• High proportion of funding from (retail) deposits, and main source of income real estate loans
• Commercial banks, savings banks, credit unions
o Finance companies
• Do not accept deposits, but rely on short- and long-term debt as source of funds
• Often give more risky (personal) loans
o Securities firms
• Investment banks (originate, underwrite, distribute new securities)
• Brokerage firms (purchase, sale of existing securities)
Types
o Retail banks: consumer deposits, consumer loans, mortgages, small business loans (checking/savings accounts,
overdrafts, loans, credit & debit cards, safe deposit boxes)
3
, o Wholesale bank (corporate bank): deposits/loans to large companies, governments, pension funds, etc.
o Investment bank/brokerage: fee/commission generating business (asset management, M&A, securities trading, raising
capital, securities underwriting)
o Universal bank: offer all the above (one-stop-shopping)
TYPES OF BANKS IN EUROPE
Universal banks e.g. BNP Paribas, Société Générale, Credit Agricole, KBC, Deutsche Bank, Barclays, HSCB, RBS
o Allowed in EU since Second Bank Directive (1989), in US since Financial Services Modernization Act (1999)
o Large listed banks, offer brokerage services (no real investment banks)
Commercial (retail) banks: mainly smaller, often non-listed e.g. Sparkassen in Germany, Argenta, Triodos
Wholesale banks e.g. Landesbanken in Germany, Lloyds, Commerzbank
BANKS IN BELGIUM
Leading banks
o BNP Paribas/Fortis, KBC, Belfius, ING Belgium
o All offer retail/wholesale banking, insurance, asset/wealth management ⇾ Sometimes via subsidiaries/partnerships e.g.
ING and Nationale Nederlanden, Belfius and Candriam
Others
o Retail banks e.g. Argenta, Beobank, Crelan/Axa, Europabank, Triodos, VDK bank
o Finance companies (personal loan/consumer credit) e.g. Cofidis, Fimaser (Carrefour Finance)
o Branches of foreign banks e.g. Bank of New York Mellon, Deutsche Bank, Banco Santander
RECAP
Key question: What are banks?
o Banks are financial service providers
o Variety of business models
• Retail bank
• Wholesale bank
• Investment bank/brokerage
• Universal bank
ð But more often they offer two or more types of services: “A continuum rather than a discrete set of strategies”
LECTURE 2: WHY DO BANKS EXIST?
WHY DO BANKS (OR OTHER FINANCIAL INTERMEDIRIES) EXIST?
FINANCIAL INTERMEDIATION
Allocation of resources from those with surpluses (and
no use) to those with need and productive use ⇾ Can
be done directly (via stock/bond markets) or indirectly
via banks
4
