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Modern Financial Systems: Theory and Applications by EDWIN H. NEAVE

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CHAPTER 17
Management Practice Domestic Institutions
Chapter 17 compares and contrasts the principal businesses conducted by the larger domestic financial firms found in many economies. The chapter surveys the composition and governance of the asset-liability portfolios of banks, investment banks, near-banks, insurance companies, pension funds, lending intermediaries, financial conglomerates, and venture capital companies. Its principal purpose is to explain how the different intermediary portfolios reflect differences in the economic environments in which each operates.

BANKS

Chapter 16 modeled intermediaries as profit-maximizing organizations, and the ideas behind that model are helpful in considering the practical aspects of banking evolution. Over the longer term, banks’ businesses evolve as they search for new profit sources, sources deriving from the changing economic environment and its impact on banks’ operating economics. In the 1920s and 1930s, banks mainly focused on accepting deposits from commercial enterprises and on using the funds to make commercial loans. In the 1930s and 1940s, banks gradually began to discover that it was also profitable to accept retail deposits from individuals. At that time the funds raised from both forms of deposits were principally lent to businesses, usually in the form of working capital loans.
In the 1950s, North American banks began to offer both consumer and residential mortgage loans. The banks first discovered that consumer credit ...

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