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- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:51 am
It provides the liquidity needed for families and businesses to invest for the future. Bank loans and credit mean families don't have to save up before going to college or buying a house
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:51 am
the bank has a savings account with a 1.5% rate of return, which is likely better than the bank in your neighborhood. They take the money from your account (and a lot of other savings accounts) and use all of that money to buy (for example) a treasury note, which is guaranteed by the federal government and returns about 5%.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:51 am
largest source by far of funds for banks is deposits; money that account holders entrust to the bank for safekeeping and use in future transactions, as well as modest amounts of interest.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:51 am
Generally referred to as "core deposits," these are typically the checking and savings accounts that so many people currently have.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:51 am
Companies use loans to start hiring immediately to build for future demand and expansion.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:52 am
Banks are a safe place to deposit excess cash. The Federal Deposit Insurance Corporation insures them.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:52 am
a bank cannot attract a sufficient level of core deposits, that bank can turn to wholesale sources of funds. In many respects these wholesale funds are much like interbank CDs.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:52 am
There is nothing necessarily wrong with wholesale funds, but investors should consider what it says about a bank when it relies on this funding source. While some banks de-emphasize the branch-based deposit-gathering model, in favor of wholesale funding, heavy reliance on this source of capital can be a warning that a bank is not as competitive as its peers.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:52 am
Banks also pay savers interest rates or a small percent of the deposit.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:52 am
Banks can turn every one of those saved dollars into $10. They are only required to keep 10 percent of each deposit on hand.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:53 am
That regulation is called the reserve requirement. Banks lend the other 90 percent out.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:53 am
While deposits are the pimary source of loanable funds for almost every bank, shareholder equity is an important part of a bank's capital. Several important regulatory ratios are based upon the amount of shareholder capital a bank has and shareholder capital is, in many cases, the only capital that a bank knows will not disappear.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:53 am
They make money by charging higher interest rates on their loans than they pay for deposits.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:53 am
Banks will also raise capital through debt issuance. Banks most often use debt to smooth out the ups and downs in their funding needs, and will call upon sources like repurchase agreements or the Federal Home Loan Bank system, to access debt funding on a short term basis.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:53 am
debt is relatively common on bank balance sheets, it is not a critical source of capital for most banks. Although debt/equity ratios are typically over 100% in the banking sector, this is largely a function of the relatively low level of equity at most banks.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:54 am
debt is usually a much smaller percentage of total deposits or loans at most banks and is, accordingly, not a vital source of loanable funds.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:54 am
Loans
For most banks, loans are the primary use of their funds and the principal way in which they earn income. Loans are typically made for fixed terms, at fixed rates and are typically secured with real property; often the property that the loan is going to be used to purchase.
For most banks, loans are the primary use of their funds and the principal way in which they earn income. Loans are typically made for fixed terms, at fixed rates and are typically secured with real property; often the property that the loan is going to be used to purchase.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:54 am
Banks accept deposits and make loans and make a profit from the difference in the interest rates paid on deposits and charged for loans. Banks work because of our trust.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:54 am
We give a bank our money to keep it safe for us, and then the bank lends it to someone else in order to make money for itself.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:54 am
Banks can legally lend far more money than they have cash. Still, most of us have total trust in the bank's ability to protect our money and give it to us when we ask for it.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:54 am
banks will make loans with variable or adjustable interest rates and borrowers can often repay loans early, with little or no penalty, banks generally shy away from these kinds of loans, as it can be difficult to match them with appropriate funding sources.
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:55 am
Consumer lending makes up the bulk of North American bank lending, and of this, residential mortgages make up by far the largest share. Mortgages are used to buy residences and the homes themselves are often the security that collateralizes the loan. Mortgages are typically written for 30 year repayment periods and interest rates may be fixed, adjustable, or variable.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:55 am
Banks create money in the economy by making loans. The amount of money that banks can lend is directly affected by the reserve requirement setby the Central Bank (in the UK, the Bank of England and the Federal Reserve Bank in the US). The US Federal Reserve Bank reserve requirement for a large bank is currently 10 percent of its total deposits (11.01.2016)
- daksh007
- Posts : 11530
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:55 am
Automobile lending is another significant category of secured lending for many banks. Compared to mortgage lending, auto loans are typically for shorter terms and higher rates. Banks face extensive competition in auto lending from other financial institutions, like captive auto financing operations run by automobile manufacturers and dealers.
- kavita123
- Posts : 10734
Join date : 2019-01-07
Re: What is Bank and how it works ?
Fri Jan 11, 2019 11:56 am
To see how this affects the economy, think about it like this. When a bank gets a deposit of €100, assuming a reserve requirement of 10 percent, the bank can then lend out €90. That €90 goes back into the economy, purchasing goods or services, and usually ends up deposited in another bank.
Page 3 of 4 • 1, 2, 3, 4
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