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• W306453397 abstract "If you were to ask a banker to define the business of banking, you would probably be told something like this: Banking is a business in which money is borrowed from the public in the form of demand deposits and used to make loans and purchase securities.The banks' product is money, and banks try to sell it at a price in excess of its cost and the costs of doing business, thereby making a profit. While this response would be correct and probably reflects the view held by many bankers, banking plays a more important role in economic activity than this view alone suggests. In their role as the nation's largest financial intermediaries, commercial banks perform a number of important interrelated functions. First, on the liability side, commercial banks are the primary source of the most important ingredient of the U.S. money supply -- demand deposits. Second, banks provide these monetary through creation of credit in the form of loans and investments. In this way, banks provide liquidity to the nation's economy. Banks are the largest suppliers of short-term loanable funds to business and consumers, and they supply over one-half of the external funds needed by state and local governments. In addition, they are the largest purchasers of securities of the U.S. government and its agencies. Third, banks are the custodians of their communities' money and the mangers of most monetary transfers. For those customers who seldom borrow, the depository and savings-accumulation function of banks may be the most important, but most customers also use the convenience of transferring payments to third parties by writing checks. Most transfers of any size or over any distance are made through the banking system. Fourth, most banks provide important fiduciary services, such as safekeeping of customers assets and trust department services. Finally, banks provide various miscellaneous services, from foreign exchange to travelers checks. The services provided by a regional bank are listed and are illustrative of the variety of banking services which a commercial bank often offers.This chapter analyzes the important managerial problems faced by banks as they perform their functions as financial intermediaries. These bank problems involve questions that relate to the structure of their liabilities and the risk and return of their assets. The next section addresses these questions in a general way, using portfolio theory to develop a theoretical framework. Following this discussion,we examine some practical approaches to the activities of day-to-day bank management. Finally, the chapter presents a consolidated balance sheet and income statement for commercial banks and relates them to general institutional and regulatory constraints.In conclusion, commercial banks are financial intermediaries whose liabilities include one of the most important ingredients of the U.S. money supply -- demand deposits. The importance of banks' intermediation and money functions has affected both their structure and the ways in which they are regulated. Any discussion analyzing risks and returns on individual financial assets and liabilities and on the portfolios of these assets and liabilities -- those things that commercial banks typically manage -- must be tempered by the institutional and regulatory environment in which banks operate. Nevertheless, it is clear that, by using a wealth-maximization criterion, modern financial management techniques such as portfolio theory, linear programming, and gap management can be helpful in bank management. A detailed analysis of the balance sheet and income statement of all commercial banks provides insights into the ways banks manage their assets and liabilities subject to institutional and regulatory constraints in an environment characterized by uncertainty." @default.
• W306453397 created "2016-06-24" @default.
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• W306453397 date "2015-05-14" @default.
• W306453397 modified "2023-09-23" @default.
• W306453397 title "Chapter 4: Commercial Banking as a Business" @default.
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