Chapter 1 introduces banks and the banking system: their roles in facilitating economic activity, and their relevant risks banks face. The three core banking functions—collecting deposits, arranging payments, and making loans—and their attendant risks are described. As this chapter intends to provide a foundation for the more detailed discussions in subsequent chapters, most of the key topics are presented within a risk management framework. A glossary is provided at the end of the book.
- 1.1 Banks and Banking
- 1.2 Different Bank Types
- 1.3 Banking Risks
- 1.4 Forces Shaping the Banking Industry
Key Learning Points
- Banks provide three core banking services: deposit collection, payment arrangement, and loan underwriting. Banks may also offer financial services such as cash, asset, and risk management.
- Banks play a central role in facilitating economic activity through three interrelated processes: financial intermediation, asset transformation, and money creation.
- Retail banks primarily serve retail customers, and wholesale banks primarily serve corporate customers. A country's central bank sets monetary policy on behalf of the country's government, liaises with other central banks, and may act as the bank regulator. Sometimes a body other than the central bank is responsible for the regulation of individual banks.
- The main risks that banks face are credit, market, operational, and liquidity risks. Other types of ...