Commercial us Investment Banking
Commercial Banks
Main fin intermediaries in economy
Mainproviders of credit to households t companies
Typically privately owned joint stockcompanies
Small banks lend to households mainly collect retail deposits
Size classes
lend to companies mainly use wholesale sources ofliquidity
Big banks
BankFin statements
Sources of funds opposite of othercorporations
Balancesheet captures barkwealth
T Uses of funds
DIEratio
Superhigh
Incomestatement capture's bank performance
Appendix OBS activities
, Il t s
reportsstocks
BANK BS
Assets USES OF FUNDS SOURCES OFFUNDS Liabilities equity
1 Cash 1 Retail deposits
2 Liquidassets leg T bills 2 Corporate deposits
3 Loans 3 Interbank deposits otherbanks
a Otherinvestments bonds other fininst h Debtissues 1bonds loans
5 Fixed assets 5 Equityissues
6 Retained earnings
Banks DIE ratio is very high More Risk More return
Bc bufferagainst
shocks
issmall
m
iiiiii em Costs Revenues
BS µ BS BSorIS IS IS IS
www.t.yo.me
III An Erm Ln Put NII NIE T
estTTaxes
II
n'EEeest
edition emo toga
whichdependson
1 Salaries
Interestincomeleeperses Whichdepends 2 PPEexpenses
on
which depends on I Feesincome 3 otheroperatingexp
1 Yieldofeadrassethostofeachliab 2 Servicedrages
2 Volumeheld 3 Otherincome
3 Composition ofassets liab
, BS IS
I 1
Low Loss Reserves
ProvisionsFor
LoanLosses
f allowance bad debtexp
which depend on
1 Yieldoneachloan
2 Volume ofloans Justlikew assets
3 Composition oflaws
FROM CURRENT LOANTO CHARGE OFF
Cuppent loanpayments notlate
non performingloons NPCs
PASTDOE Payment is 30 90 or 90 days late
NPL f losses ftoo
NowACCRUAL When foh loan repayment is uncertain If 1 adequatecollateral losses
mightnothappen
When loan
UNCOLLECTIBLE is written off
f RECOVERIES When written off loan is recovered
, OFF BALANCE SHEET ACTIVITIES OBS Read slide 4.39
OBSasset assetthatmoves onto BS or IS onlyafter contingent eventoccurs
0135 liabilityliabilitythatmoves onto BS or IS onlyafter contingent eventoccurs
Most
importantones
loan commitment Commitment to make loan inthefuture feeincomeisrecordedrightaway
Standby letters ofcredit Guarantees tocovercontingenciesthatmayoccur1 toborrower Isamu asabove
Forwards futures optionsswaps Derivatives are agreementstodo something in the future
why OBS activities
L Additional fee income
2 Avoidregulatory costs t taxes no reservereg or Depins premium for ex
3 Hedging
InvestmentBanks
MAIN ACTIVITIES 1 Underwritesecurities
2 MtA advisory
3 Syndicatedloans
1Bs intermediate low fund suppliers and users
CBstransform funds into more attractive assets
Underwriting
IPOs primary issues
113g help clients issue new Sec as
I SEOs secondaryissues
In Privateplacement theyact as agents for a fee
privatecompanyseeksfundsfromprivateinvestors
Besteffortbasis agentfor afeethatdependsonplacementsucc
In publicplacements theyunderwrite
companygoespublicandor
funds
seeks Firm commitment basis purchases securitiesitselfandtries
frommarket tosellthemforhigher
Commercial Banks
Main fin intermediaries in economy
Mainproviders of credit to households t companies
Typically privately owned joint stockcompanies
Small banks lend to households mainly collect retail deposits
Size classes
lend to companies mainly use wholesale sources ofliquidity
Big banks
BankFin statements
Sources of funds opposite of othercorporations
Balancesheet captures barkwealth
T Uses of funds
DIEratio
Superhigh
Incomestatement capture's bank performance
Appendix OBS activities
, Il t s
reportsstocks
BANK BS
Assets USES OF FUNDS SOURCES OFFUNDS Liabilities equity
1 Cash 1 Retail deposits
2 Liquidassets leg T bills 2 Corporate deposits
3 Loans 3 Interbank deposits otherbanks
a Otherinvestments bonds other fininst h Debtissues 1bonds loans
5 Fixed assets 5 Equityissues
6 Retained earnings
Banks DIE ratio is very high More Risk More return
Bc bufferagainst
shocks
issmall
m
iiiiii em Costs Revenues
BS µ BS BSorIS IS IS IS
www.t.yo.me
III An Erm Ln Put NII NIE T
estTTaxes
II
n'EEeest
edition emo toga
whichdependson
1 Salaries
Interestincomeleeperses Whichdepends 2 PPEexpenses
on
which depends on I Feesincome 3 otheroperatingexp
1 Yieldofeadrassethostofeachliab 2 Servicedrages
2 Volumeheld 3 Otherincome
3 Composition ofassets liab
, BS IS
I 1
Low Loss Reserves
ProvisionsFor
LoanLosses
f allowance bad debtexp
which depend on
1 Yieldoneachloan
2 Volume ofloans Justlikew assets
3 Composition oflaws
FROM CURRENT LOANTO CHARGE OFF
Cuppent loanpayments notlate
non performingloons NPCs
PASTDOE Payment is 30 90 or 90 days late
NPL f losses ftoo
NowACCRUAL When foh loan repayment is uncertain If 1 adequatecollateral losses
mightnothappen
When loan
UNCOLLECTIBLE is written off
f RECOVERIES When written off loan is recovered
, OFF BALANCE SHEET ACTIVITIES OBS Read slide 4.39
OBSasset assetthatmoves onto BS or IS onlyafter contingent eventoccurs
0135 liabilityliabilitythatmoves onto BS or IS onlyafter contingent eventoccurs
Most
importantones
loan commitment Commitment to make loan inthefuture feeincomeisrecordedrightaway
Standby letters ofcredit Guarantees tocovercontingenciesthatmayoccur1 toborrower Isamu asabove
Forwards futures optionsswaps Derivatives are agreementstodo something in the future
why OBS activities
L Additional fee income
2 Avoidregulatory costs t taxes no reservereg or Depins premium for ex
3 Hedging
InvestmentBanks
MAIN ACTIVITIES 1 Underwritesecurities
2 MtA advisory
3 Syndicatedloans
1Bs intermediate low fund suppliers and users
CBstransform funds into more attractive assets
Underwriting
IPOs primary issues
113g help clients issue new Sec as
I SEOs secondaryissues
In Privateplacement theyact as agents for a fee
privatecompanyseeksfundsfromprivateinvestors
Besteffortbasis agentfor afeethatdependsonplacementsucc
In publicplacements theyunderwrite
companygoespublicandor
funds
seeks Firm commitment basis purchases securitiesitselfandtries
frommarket tosellthemforhigher
