Economics of Banking

In: Business and Management

Submitted By Teo88
Words 1454
Pages 6
We observe very large and rapid declines in the policy rate (the very short rate) in late 2008 and early 2009. Considering the US, the UK, and Japan, did long rates fall as much around that time or less or more?

In late 2008, many developed economies where in or close to recession, with growth slowing noticeably in the emerging economies. These events prompted an easing of monetary policy and expansionary fiscal measures in many countries (Reserve Bank of Australia, 2008).

The policy rate is the target 'cash rate' set by central banks. This is also the market interest rate on overnight funds, which is used as an instrument for monetary policy (Mishkin, 2013). The long rate is also known as Government securities, or ten-year government bonds.

After conducting an analysis from the data in graph 4.1 and 4.4 (Appendix 1) of the Bank for International Settlements 2012 Annual Report (Chapter 4), it can be said that the long rate fell less than the policy rate on average. The results were as follows:

In the US, the long-term rate fell from 3.75% to 3.00%, a change of .75 percentage points (bps), whereas the policy rate fell from 2.00% to 0.25%, a change of 1.75 percentage points. This indicates that the long rate fell less than the policy rate.

In the UK, the policy rate declined noticeably compared to the long rate during this time. The UK’s policy rate experienced a rapid fall from 5.00% to 0.50%, a change of 4.50 percentage points. The long rate did not experience such a decline, falling from 4.25% to 3.50%, a change of .75 percentage points.

However, in Japan both the policy rate and long-term rate fell by the same margin. The long-term rate fell from 1.75% to 1.50%, a change of .25 percentage points, whereas the policy rate fell from 0.50% to 0.25%, also a change of .25 percentage points.

Policy rate
Country 2008 (Sep) 2009 (Mar) Decline…...

Similar Documents

Banking

...  Role of Banks for developing the Economy of Bangladesh Role of Banks for developing the Economy of Bangladesh Introduction Banks over the years, have become a significant aspect of an economy. With the on going financial depression, the position of banks have become all the more important in the course of working of the money market and hence the economy of a nation. The banking sector forming a portion of the financial sector primarily works as a financial intermediary generating money supply. From the different macro economic models , banks have been found to be a part of the supply side of the economy . However, over time banks have transformed from merely money generating organizations to a multi tasking entity. In this paper, we shall deal with the role of banks in the context of the world economy as well as the Bangladesh economy . The first section will illustrate the functions of a bank along with its classification. In the second section, we shall discuss the role of a banks as a major component of the service sector rendering to the economy as a whole. In the third section, we would like to empirically validate our hypothesis with a comprehensive data analysis. The recession in the US market and the global meltdown termed as Global recession have engulfed complete world economy with a varying degree of recessional impact. World over the impact has diversified and its impact can be observed from the very fact of falling Stock market,......

Words: 6647 - Pages: 27

Banking

...A PROJECT REPORT ON FINANCIAL SERVICES OF BANKS Submitted to University of Mumbai in Partial fulfillment Of the requirement of the Degree of B.Com ³BANKING & INSURANCE´ Under guidance of PROF. RUEEN PATEL VPM¶S K.G Joshi College of Arts N.G Bedekar College of Commerce Thane (E) Academic Year: 2010-11 BYJEMINI.J.PATIL ACKNOWLEDGEMENT In completing this project I am deeply conscious of my debt to all those, without whose warm support, enragement & guidance this project was not possible to complete. I am specially greatful to Prof Rueen Patel my guide to this project, She actually gave the life to this project and guidance of my parents & friends this project took shape. They also provided me much needed criticism & encouragement. Jemini Patil DECLARATION I am Jemini J. Patil studying in T.Y.Banking & Insurance hereby declare that I have done a project on ³Financial Services provided by Banks´. As required by the university rules, I state that the work presented in this thesis is original in nature and to the best my knowledge, has not been submitted so far to any other university. Whenever references have been made to the work of others, it is clearly indicated in the sources of information in references. Student (Jemini. J. Patil) Place: Thane Date: October, 2010 EXECUTIVE SUMMARY Banks are the Financial Institution which satisfies the individual & group goals with proper systems of rules, regulations, policies, services, procedures &......

Words: 11527 - Pages: 47

Banking

...calamities, etc. Changing Role of Banks in India The role of banks in India has changed a lot since economic reforms of 1991. These changes came due to LPG, i.e. liberalization, privatization and globalization policy being followed by GOI. Since then most traditional and outdated concepts, practices, procedures and methods of banking have changed significantly. Today, banks in India have become more customer-focused and service-oriented than they were before 1991. They now also give a lot of importance to their rural customers. They are even willing ready to help them and serve regularly the banking needs of country-side India. The following points briefly highlight the changing role of banks in India. 1. Better Customer Service Before 1991, the overall service of banks in India was very poor. There were very long queues (lines) to receive payment for cheques and to depositmoney. In those days, some bank staffs were very rude to their customers. However, all this changed remarkably after Indian economic reforms of 1991. Banks in India have now become very customer and service focus. Their service has become quick, efficient and customer-friendly. This positive change is mostly due to rising competition from new private banks and initiation of Ombudsman Scheme by RBI. 2. Mobile Banking Under mobile banking service, customers can easily carry out major banking transactions by simply using their cell phones or mobiles. Here, first a customer needs to activate......

Words: 4913 - Pages: 20

Current Economic and Banking Matters

...improved governance and concerted action to resolve structural bottlenecks, especially in infrastructure sector. Output gap is likely to reduce, but remain negative. • Headline inflation is likely to remain range-bound in 2013-14, with some further moderation in H1 due to subdued producers' pricing power and falling global commodity prices, before it increases somewhat in H2 largely due to base effects. • Reserve Bank's survey of outside professional forecasters shows anticipation of a modest recovery with growth in 2013-14 at 6.0 per cent from 5.0 per cent and average WPI inflation to moderate to 6.5 per cent from 7.3 per cent. Surveys show that inflation expectations have moderated slightly, while business expectations remain subdued. Global Economic Conditions Global growth likely to stay sluggish, commodity price inflation soft • Global growth turned weaker in 2012 and is expected to stay sluggish in 2013. Fiscal adjustments will drag growth down in advanced economies and delay cyclical recovery in emerging market and developing economies. • Outlook for global commodity prices, including metals and oil, remains benign. It should help reduce imported inflation, subject to broadly stable exchange rate. However, some risks remain from the large and continuous doses of quantitative easing. 2 • Global financial market conditions have improved as a result of unconventional monetary policy easing and supportive policy actions. However, tail risks remain significant, calling......

Words: 1284 - Pages: 6

The Role of Central Banking in the Global Economic and Financial Crisis

..."The Role of Central Banking in the Global Economic and Financial Crisis" 1. Introduction It is fair to say that central banks around the world have learned the lessons from previous crises and they attempted to change financial regulations to keep pace with the changing global financial system. The policy response triggered by the recent financial crisis has been rapid and it appears that the global policy response has helped to mitigate the effects of the financial crisis. European Central Bank response to the latest crisis was an example of swift and effective reaction. It combined a mix of standard and non-standard monetary actions. 2. European Central Bank (ECB) – history and mission The ECB is the central bank for Europe's single currency (the euro) and its main task is to maintain the euro's purchasing power and thus price stability in the euro area. The ECB was created in 1998 to serve as the central bank representing the interests of the countries belonging to the European Union. In less than a decade, the ECB, headquarter in Frankfurt, Germany, has emerged as one of the world’s most important financial institutions. The Treaty of Nice (1967) established a three-stage plan to create a single currency and monetary policy for the euro area by creating the European System of Central Banks (ESCB). The ESCB consists of the ECB as well as the national central banks for each of the member nations. The ECB is successor of the European Monetary Institute (EMI).......

Words: 2079 - Pages: 9

Banking

...Athens University of Economics and Business ABSTRACT The aim of this study is to examine the effect of bank-specific, industry-specific and macroeconomic determinants of bank profitability, using an empirical framework that incorporates the traditional Structure-Conduct-Performance (SCP) hypothesis. To account for profit persistence, we apply a GMM technique to a panel of Greek banks that covers the period 1985-2001. The estimation results show that profitability persists to a moderate extent, indicating that departures from perfectly competitive market structures may not be that large. All bank-specific determinants, with the exception of size, affect bank profitability significantly in the anticipated way. However, no evidence is found in support of the SCP hypothesis. Finally, the business cycle has a positive, albeit asymmetric effect on bank profitability, being significant only in the upper phase of the cycle. Keywords: Bank profitability; business cycles and profitability; dynamic panel data model JEL classification: G21; C23; L2 Acknowledgements: The authors would like to thank I. Asimakopoulos, E. Georgiou, H. Gibson, J. Goddard, P. Molyneux and G. Tavlas, as well as participants of the 3rd Annual Conference of the Hellenic Finance and Accounting Association (December 2004, Athens) for very helpful comments. The views expressed in this paper do not necessarily reflect those of the Bank of Greece. Correspondence: Panayiotis P. Athanasoglou, Economic Research......

Words: 11509 - Pages: 47

Banking

...bManual on Financial and Banking Statistics LIST OF ABBREVIATIONS ACF AD ADB ADR AFS AGM AIRCSC Auto-Correlation Function Authorized Dealer Asian Development Bank American Depository Receipt Annual Financial Statement Annual General Meeting All India Rural Credit Survey Committee Additive Outliers Auto Regression Auto-Regressive Integrated Moving Average Available For Sale CBS CC CD CD Ratio CDBS CF CFRA CGRA CII CO CP Consolidated Banking Statistics Cash Credit Certificate of Deposit Credit Deposit Ratio Committee of Direction on Banking Statistics Company Finance Combined Finance and Revenue Accounts Currency and Gold Revaluation Account Confederation of Indian Industries Capital Outlay Commercial Paper Consumer Price Index Consumer Price Index for Industrial Workers Capital Receipts Capital to Risk Weighted Asset Ratio Cash Reserve Ratio Council of Scientific and Industrial Research Central Statistical Organisation Central Vigilance Commission Development Action Plan Department of Banking Operations and Development Department of Banking Supervision, RBI Department of Company Affairs, (Now known as Ministry of Companies Affairs, MCA) Government of India AO AR ARIMA AFS CPI ASSOCHAM Associated Chambers of Commerce and Industry of India ATM ATM BIS BOI BoP BPM5 Asynchronous Transfer Mode Automated Teller Machine Bank for International Settlements Bank of India Balance of Payments Balance of Payments Manual, 5th edition Balance of Payments Division,......

Words: 1394 - Pages: 6

Banking

...Lichtenstein & Williamson: Consumer Adoption of Internet Banking UNDERSTANDING CONSUMER ADOPTION OF INTERNET BANKING: AN INTERPRETIVE STUDY IN THE AUSTRALIAN BANKING CONTEXT Sharman Lichtenstein Deakin University, Australia sharman.lichtenstein@deakin.edu.au Kirsty Williamson Monash University and Charles Sturt University, Australia kirsty.williamson@sims.monash.edu.au ABSTRACT This paper reports key findings from an interpretive study of Australian banking consumer experiences with the adoption of internet banking. The paper provides an understanding of how and why specific factors affect the consumer decision whether or not to bank on the internet, in the Australian context. A theoretical framework is provided that conceptualizes and links consumer-oriented issues influencing adoption of internet banking. The paper also provides a set of recommendations for Australian banks. Specifically, the findings suggest that convenience is the main motivator for consumers to bank on the internet, while there is a range of other influential factors that may be modulated by banks. The findings also highlight increasing risk acceptance by consumers in regard to internetbased services and the growing importance of offering deep levels of consumer support for such services. Gender differences are also highlighted. Finally, the paper suggests that banks will be better able to manage consumer experiences with moving to internet banking if they understand that such experiences involve......

Words: 12503 - Pages: 51

Banking

...Note : Both the sections are compulsory. Section I CASE I : BANKING ON RELATIONSHIP The birth of ABC Bank took place after the RBI issued guidelines for the entry of new private sector banks in January 1993. Subsequently, the promoter of ABC Bank sought permission to establish a commercial bank and retained KPMG, a management consultant of international repute, to prepare the groundwork for establishing a commercial bank. The Reserve Bank of India conveyed its approval in principle to establish ABC Bank on February 11, 1994. Thereafter, the Bank was incorporated under The Companies Act in September 1994. The bank started its operations in November 1995. The ABC Bank was promoted by the tenth largest development bank in the world, which had a magnificent record of promoting world-class institutions in India. The promoter was a strategic investor in a plethora of institutions, which had revolutionized the Indian financial markets. Keeping in line with its policy of leveraging technology to drive its business, ABC Bank deployed Finacle, the e-age banking solution from Infosys to consolidate its position, meet challenges and quickly seize new business opportunities. The entire Finacle rollout was remarkable, considering the fact that it was implemented across all branches in a record timeframe of 5 months. Finacle provided the critical technology platform to propel the bank’s operations with new thrust and direction. The bank also implemented Kondor – a......

Words: 1746 - Pages: 7

Banking

...when and how the word “Bank” was derived. But it is assumed that this word derived from the ancient Latin words “Banco”, “Bangk”, “Bancus” and “Banque”. Meaning of these words is long bench. Once a class of people used to sit in the bench particularly in Lombardy street of Italy for taking deposit and lending money as a banking business. Definition of Bank: ➢ Different authors have defined the “Bank” in different ways with a common principle to accept deposit from the public and lending the same to the borrowers. ➢ Some important definitions are: ➢ “A bank is an establishment which trades in money, and establishment for deposit custody and issue of money, and also for granting loan and discounting bills and facilitating transmission of remittances from one place top another” …... from Imperial Dictionary. ➢ “An organization through which funds in the form of money or claim to money are assembled and transferred from those individuals and firms having a surplus of economic goods(as represented by such funds) to other individuals & firm whose needs for funds exceed their existing supply”..... from Rollin G. Thomas. ➢ “Banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, order or otherwise. ……………. from The Bank Company Act, 1991. Banker: ➢ Section-3 of NI Act. states that Banker means “ a person......

Words: 2187 - Pages: 9

Economics of Banking

...H.Keiding: Economics of Banking (Prel.version:September 2013) Chapter 18, page 1 Chapter 18 Capital Regulation and The Basel Accords 1. Introduction: why capital regulation? 2. Effects of capital regulation 2.2. A model where banks have equity in excess of regulatory demand. There is some empirical evidence that banks choose a composition of funding where the share of equity is larger than what is demanded by regulators. Below we consider a simple model of largely competitive financial markets, due to Allen, Carletti and Marquez (2011), where this is the case. We consider a one-period economy with firms having access to a risky investment and in need of financing, and banks that lend to the investors and monitor them. An investment requires one unit of funds, and its payoff is y if successful, 0 if not. The loan contract specifies a repayment rL , and the loan market is assumed to be competitive, so that the firm receives any surplus arising from the project. The bank chooses an amount k of capital which costs rE ≥ 1 per unit, and an amount 1 − k of deposits, for which the pay a deposit rate rD . We assume that the deposit market is also competitive, so that the deposit rate rD will be such that depositors maintain the value of their deposits. In addition, the bank chooses a level q of monitoring the borrower, here measured as the probability of success of the investment, at a cost q2 /2 to the bank. This is indeed the key ingredient of the model. We have assumed that......

Words: 5508 - Pages: 23

Banking

...Banking Research & Writing Table of content Introduction 3 Structure and functioning of UK banking system: 3 Performance measurement system 5 Trading revenues and Value-at-Risk 7 Evaluation of Regulatory Challenges of UK Universal Banking Model 9 Micro and macro prudential regulation 9 Basel II, III regulation 10 Global Financial Crises in UK 12 Conclusion 13 References 14 Introduction The UK managing an account has experienced considerable change in the course of the most recent 20 years, essentially determined by local deregulation and different strengths that have changed supply and interest qualities of the money related administrations industry. Elaboration of structure and functioning of the UK banking industry, Evaluation of Regulatory Challenges of UK Universal Banking Model and Global Financial Crises in UK is discussed further in this paper. Structure and functioning of UK banking system: The UK banking system is regularly said to be very focused and subsequently deficiently aggressive. The UK banking sector contains one market and not many markets. The UK banking system is indeed a mix of numerous separate product markets with rivalry originating from distinctive regions and diverse contenders. The High Street banks are all sizeable members in each of the business sector fragments and giving administrations to the overall population, the leading bank in each one fragment has a tendency to appear as something else. Business......

Words: 2870 - Pages: 12

Banking

...RISK MANAGEMENT DEFINITION OF RISK: 1. Risk in finance is defined in terms of the variability of actual returns on an investment, around an expected return, even when those returns represent positive outcomes. 2. The decisions on how much risk to take and what type of risks to take are critical to the success of the business. 3. The essence of good management is making the right choices when it comes to dealing with different risks. 4. In banking, the risk is the possibility that a borrower or counterparty will fail to meet its obligations in accordance with the agreed terms, both in terms of time and quantity. 5. Risk does not come alone – the default of one firm may cripple affiliated firms such as suppliers, customers and banks. RISK MANAGEMENT: 1. Risk Management is a planned method of dealing with the potential loss or damage. It is an ongoing process of risk appraisal through various methods and tools. 2. Risk Management involves not only to protect oneself against some risks but also to decide which risks are to be exploited and how to exploit them. 3. Risk Management covers credit decision making, performance assessment, pricing, capital computation, provisioning etc. 4. Risk Management covers the following: a. It assesses what could go wrong b. It determines which risks are important to be dealt with c. It implements strategies to deal with those risks. 5. Risk Management is not – ...

Words: 5577 - Pages: 23

Banking and It

...Analytical Study of Information Technology in Banking Sector: Opportunities, Challenges and Strategies Case study of selected banks operating in Kathmandu Valley Research Proposal Arika Kayastha Kathmandu College of Management BBIS 4th year, 1st Semester (2011 – 2015) A013408-11 To: Erika Gajurel Research Supervisor Kathmandu College of Management Gwarko, Lalitpur Contents Chapter I: Introduction 1 1.1 Background 1 1.2 Problem statement 3 1.3 Research Question 4 1.4 Research Objective 4 Chapter II: Literature review 6 Chapter III: Conceptual Framework: 8 Chapter IV: Methodology 10 4.1 Research overview 10 4.2 Data Source 10 4.3 Collection Tools 10 4.4 Data Analysis 11 References 12 Work plan 13 Chapter I: Introduction 1.1 Background The 21st century will bring about an all-embracing convergence of computing, communications, information and knowledge. The advent of high speed networks, along with the falling cost of computing power, is making applications possible that were undreamed of in the past. Voice, data, images, and video can now be transferred around the world in micro-seconds (Hassan Ghaziri, 1998). The world, today, has been characterized by technological advancements and digitization like never before. This trend has not only influenced the world of computers but also pervaded all possible facets of human life. This has radically changed the way we live, work, and think. The advances in information and communication technologies and the emergence......

Words: 2133 - Pages: 9

Banking

...1. Introduction to banking sector Whenever you think of Banks what comes to your mind? Your salary account, your savings account or if you are a businessman your current account. Maybe you are also thinking about loans you took from a bank – your home loan, your car loan or your personal loan. But, did you ever pause to think how does this industry actually work – What is the structure of the Indian Banking Industry? What is its business model? How does a bank make money? What is its future outlook? Let us demystify it. The Banking industry plays a dynamic role in the economic development of a country. The growth story of an economy depends on the robustness of its banking industry. Banks act as the store as well as the power house of the country’s wealth. They accept deposits from individuals and corporate and lends to the businesses. They use the deposits collected for productive purposes which help in the capital formation in the country. Today, the Indian Banking System is known the world over for its robustness. The Reserve Bank of India is the central/apex Bank which regulates the functioning of all banks operating within the country. The banking system, largely, comprises of scheduled banks (banks that are listed under the Second Schedule of the RBI Act, 1934). Unscheduled banks form a very small component (function in the form of Local Area Bank). Scheduled banks are further classified into commercial and cooperative banks, with the basic difference in their......

Words: 602 - Pages: 3