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[FINS1612]
ComprehensiveNotes
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TABLEOFCONTENTS
TableofContents.........................................................................................................................................2
1.IntroductiontotheFinancialSystem........................................................................................................3
2.TheBankingSystem...............................................................................................................................14
3.EquityMarketsI.....................................................................................................................................29
4.EquityMarketsII...................................................................................................................................45
5.EquityMarketsIII...................................................................................................................................55
6.CFAEthicsandStandardsofPractice......................................................................................................63
7.DebtMarkets.........................................................................................................................................69
8.ForeignExchangeMarkets.....................................................................................................................83
9.InterestRateDetermination..................................................................................................................94
10.FuturesandForwards.........................................................................................................................105
11.Options...............................................................................................................................................115
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1.INTRODUCTIONTOFINANCIAL
SYSTEM
1.1THEFINANCIALSYSTEMANDFINANCIALINSTITUTIONS
Afinancialsystemhas:
- Money:amediumofexchange
- Markets:facilitateexchangeofgoodsandservices- Surplusunits:saversoffundsavailableforlending- Deficitunits:borrowersoffundforcapitalinvestmentandconsumption
- Flowoffunds:movementoffundthroughthefinancialsystembetweensaversandborrowers
Thewiderangeoffinancialproductsavailableinafinancialsystemfacilitatesportfoliostructuringi.e.thebuyingandsellingofassetsandliabilitiestobestmeetcurrentsavings,investmentandfundingneeds.
Anassetportfolioisacombinationofassets,eachcomprisingoffourmainattributes,whichare:
1. Returnoryield:thetotalfinancialbenefitreceived(interestandcapitalgain)fromaninvestment;
expressedasapercentage
2. Risk:thepossibilityorprobabilitythatanactualoutcomewillvaryfromtheexpectedoutcome;
uncertainty
3. Liquidity:accesstocashandothersourcesoffundstomeetday-to-dayexpensesandcommitments
4. Time-PatternofCashFlow:thefrequencyofperiodiccashflows(interestandprincipal)associatedwithafinancialinstrument
FinancialSystem:comprisesarangeoffinancialinstitutions,financialinstrumentsandmarketswhich
interacttofacilitatetheflowoffundsthroughthefinancialsystem;overseenbyacentralbank;supervised
byaprudentialregulator
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Financialsystemsalsoprovideimportanteconomicandfinancialinformation:
- Informationaffectspriceandinvestmentdecisions;therefore,theprovisionoftimelyandaccurate
informationisessentialforanefficientfinancialsystem
Financialsystemhasanimportantroleintheimplementationofmonetarypolicy:
- MonetaryPolicy:actionsofacentralbankthatinfluencesthelevelofinterestratesinordertoachieveeconomicoutcomes;primarytargetisinflation
- Inflation:anincreaseinpricesofgoodsandservicesovertime;measuredbytheconsumerprice
index(CPI)
CATEGORIESOFFINANCIALINSTITUTIONS
Therearefivecategoriesoffinancialinstitutionsbasedonthedifferencesbetweentheinstitutions’sourceoffundsandusesoffunds:
1. Depositoryfinancialinstitutions:acceptdepositsandprovideloanstocustomers
Examplesincludewhendepositsplacedindemanddepositaccountsortermdepositaccountswith
o Commercialbanks
o BuildingSocieties
o CreditCooperatives
2. Investmentbanks:specialistprovidersoffinancialandadvisoryservicestocorporations,high-net-worthindividualsandgovernment
Servicesincludeadvisingclientson:
o MergersandAcquisitions
o Portfoliorestructuring
o Financialriskmanagement
NOTE:theymayalsogiveloansbutnotveryoften
3. Contractualsavingsinstitutions:offerfinancialcontractssuchasinsuranceandsuperannuation;largeinvestors
o Liabilitiesaremainlycontractswhichspecifythatinreturnforperiodicpaymentsmadetothe
institution,theinstitutionwillmakespecifiedpayoutstotheholderofthecontractif/whenan
eventspecifiedbythecontractoccurs
o Thelargepoolofcashreceiptsisreinvested
4. Financecompaniesandgeneralfinanciers:borrowfundsdirectfrommarketstoprovideloansand
leasefinancetocustomers
o Raisesfundsbyissuingfinancialinstrumentssuchascommercialpapers,medium-termnotes
andbondsinthemoneymarketsandcapitalmarkets
5. Unittrusts:investorsbuyunitsissuedbythetrust;pooledfundsinvested(e.g.equitytrustsandpropertytrusts)
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1.2FINANCIALINSTRUMENTS
Thefinancialinstrumentbecomesanassetonthebalancesheetoftheprovideroffunds,butaliabilityor
shareholder’sequitydependingonthenatureofthecontractfortheborroweroffunds
Financialinstrumentsmaybedividedintothreebroadcategories:
1. Equity2. Debt3. Derivatives
1.EQUITY
OrdinaryShare/CommonStock:theprincipalformofequityissuedbyacorporation;bestowscertainrightsto
theshareholder
- Havenomaturitydatei.e.permanentinnature- Maybesoldtootherinvestorsonthestockexchange- Sourceofincome=dividendpayments+capitalgain
o Shareholdersareentitledtotheprofitsofthebusinessintheformofdividendso Thevalueofthesharesmayincreaseovertime,representingacapitalgain
Note:thereisnoobligationtopaydividends,paymentsaremadeatthefirm’sdiscretion- Residualrankinginbankruptcy:Intheeventoffailureofthecorporationshareholdersarethelastto
bepaidout- Votingrights
- Ownershipinterests
- Gettoparticipateintheupsideofthecompanybutarealsoexposedtothedownside
HybridSecurities:arefinancialinstrumentsthatincorporatesthecharacteristicsofbothdebtandequity(e.g.
preferenceshares)
- Preferenceshareholdersareentitledtoreceiveaspecifiedfixed-dividendforadefinedperiodsimilar
tofixed-interestpayments
- Thesepaymentstakepriorityoverordinarydividends
- Preferenceshareholdersalsotakepriorityoverordinaryshareholdersduringliquidation
Financialinstrument:issuedbyapartyraisingfunds,acknowledgingafinancialcommitmentandentitling
theholdertospecifiedfuturecashflows
Equity:thesumofthefinancialinterestsaninvestorhasinanasset;anownershipposition
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2.DEBT
DebtInstruments:representacontractualclaimandentitletheholdertoaclaim(aheadofequityholders)to
theincomestreamoftheborrowerand/ortheassetsoftheborroweriftheborrowerdefaults
Longer-TermDebt
InstrumentsIssuedinto
CapitalMarkets
Short-TermDebtInstruments
issuedintoMoneyMarkets
ProvidedbyFinancial
Institutions
- Debentures
- UnsecuredLoans
- CommercialBills
- PromissoryNotes
- TermLoans
- MortgageLoans
- Overdrafts
Debtcanbecategorizedintwoways:
1. Securedvs.Non-Secured:theformerbeingadebtinstrumentthatprovidesthelenderwithaclaim
overspecifiedassetsiftheborrowerdefaults
2. Negotiablevs.Non-NegotiableDebtInstrument:theformerbeingaredebtinstrumentsthatcanbe
soldbytheoriginallenderthroughafinancialmarket
- Temporaryinnature(hasamaturity)- Obligationtorepaythefacevalueatmaturity,oftenwithinterestcosts(periodpayments)
associated- Seniorrankinginbankruptcy- Seniorrankingalsoinincomedistribution
§ Debtisacontractualobligation,unlikedividends
- Consideredtobea‘safe’investment
- Inbankruptcy,debtwillalwaysberepaidunlessthevalueoftheassetsofthefirmarelessthanthe
valueofthedebt
o Interestpaymentsareeither:
§ Fixed,or
§ Floating(BBSW+creditspread)
InterestratedeterminedbyanindicatorsuchastheBBSW
BBSW=BankBillSwapRate(AustralianTerm,overseascalledLIBORLondonInter-BankOvernightRate)
Debt:isaloanthatmustberepaid
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3.DERIVATIVES
Therearefourbasictypesofderivativescontracts:
1. FuturesContract:anexchange-tradedagreementtobuyorsellaspecificcommodityorfinancial
instrumentataspecificpriceatapredeterminedfuturedate
2. ForwardContract:anover-the-counteragreementthatlocksinaprice(interestrateorexchange
rate)thatwillapplyatafuturedate
3. OptionContract:theright,butnottheobligationtobuyorsellacommodityorsecurityata
predeterminedexerciseprice;theoptionbuyerpaysapremiumtotheoptionwriter
4. SwapContract:anagreementbetweentwopartiestoswapfuturecashflows;interestrateswaps
andcurrencyswaps
Theunderlyingassetmaybe:
- Financial
- Physical
- Anotherderivative
Whenyouaretradingderivatives,youaretradingbasedonthepricemovementsoftheunderlyingassetbutyouarenottradingtheunderlyingassetitself.
Derivativesusedto:
- Arbitrageà“exploitingmarketinefficienciesi.e.pricedifferentialswithinmarkets”- Speculate- Hedge
Derivatives:afinancialinstrumentwhosevalueisderivedfromthatofanunderlyingasset
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1.3FINANCIALMARKETS
THEMATCHINGPRINCIPLE
TheGFC:WhytheMatchingPrincipleissoimportant
- Anumberoffinancialinstitutionswerefundinglonger-terminvestmentwithshort-termfinancein
themoneymarkets
- DuringtheGFCshort-termfinancingavailablethroughthemoneymarketceasedbecauseof
uncertaintyinrelationtothesub-primemarketcollapse
- Asaresult,theinstitutionsexperiencedliquidityproblemsastheywerenolongerabletofinance
BalancesheetofbanksduringtheGFC:
Assets Liabilities
Mortgages Wholesalefunding
-Longterm -Short-term‘hotmoney’
-Poorquality(subprime) -Easilyspooked;refusedtorolloverdebt
-Complicatedtoassess Equity
Notasmuchasrequirednow,struggledtoabsorblosses
PRIMARYANDSECNDARYMARKETTRANSACTIONS
Primarymarket:securityissuedforthefirsttimeàthecreationofanewfinancialinstrument
- Capitalraisingforcorporation(/deficitunit)
- Maybenegotiableornon-negotiable
- Ifanofferinggoeswell(beitdebtorequity),thisisgoodpublicityforthefirm
Secondarymarket:iftheassetisnegotiable,thenitcanbesoldonthesecondarymarket.
- Doesnotraisecapitalfortheinitialissuer
- Transferofownership
- Generatesliquidityintheprimarymarket
o Investorflexibility(canonsellwhendesired)
o Transparentpricediscovery
MatchingPrinciple:theideathatshort-termassetsshouldbefundedwithshort-termliabilitiesandlonger-
termassetsshouldbefundedwithlonger-termliabilitiesandequity
Security:financialassetthatcanbetradedinaformalsecondarymarket
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DIRECTFINANCEANDINTERMEDIATEDFINANCE
Theissueofnewfinancialinstrumentsgeneratesaflowoffundsthroughprimarymarketsfromtheproviderof
fundstotheuseroffunds.Thisflowcanoccurintwoways:
1. Thefundsmayflowthroughadirectrelationshipfromtheprovideroffundstotheuseroffunds
2. Theflowoffundsmayoccurthroughafinancialintermediarysuchasabank
DIRECTFINANCE
SurplusUnits--------(BrokersandDealers)-------->DeficitUnits
Transactionsmayincludebrokersanddealers:
- Broker:anagentwhocarriesouttheinstructionsofaclient- Dealer:makesamarketinasecuritybyquotingbothbuy(bid)andsell(offer)prices
THEBENEFITSANDDISADVANTAGESOFDIRECTFINANCE
Directfinanceisgenerallyonlyavailabletocorporationsandgovernmentauthoritiesthathaveestablisheda
goodcreditrating(theassessmentbyacreditratingagencyofthecreditworthinessofanobligortoafinancial
obligation)
Advantages Disadvantages
Removesthecostofafinancialintermediary Therecanbeaproblemofmatchingthepreferenceof
lendersandborrowers
Itallowsaborrowertodiversifyfundingsourcesby
accessingboththedomesticandinternational
moneyandcapitalmarkets
Theliquidityandmarketabilityofadirectfinance
instrumentmaybeofconcern
Itenablesgreaterflexibilityinthetypesoffunding
instrumentsusedtomeetdifferentfinancingneeds Thesearchandtransactioncostsassociatedwitha
directissuecanbequitehigh
Anorganizationmayenhanceitsinternational
profilebycarryingouttransactionsinthe
internationalmarkets
Itcanbedifficulttoassessthelevelofriskof
investmentinadirectissue,particularlydefaultrisk
INTERMEDITEDFINANCE
- Anintermediaryobtainsfundingfromsurplusunits(savers)whoreceivefinancialinstrumentsissued
bytheintermediarysuchastermdepositreceipts
DirectFinance:fundingobtaineddirectfromthemoneymarketandcapitalmarket
IntermediatedFinance:Financialtransactionconductedwithafinancialintermediary
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- Theintermediarythencreatesaseparatecontractualagreementwiththeborrower.
- Thesaverhasnoclaimontheincomeorassetsoftheultimateborrower,thoseentitlementsreside
withtheintermediary
- Thesaveronlyhasclaimonthepaymentofinterestandtheprincipalatmaturity
THEBENEFITSOFFINANCIALINTERMEDIATION
Anessentialroleofanintermediaryistoresolvetheconflictingpreferencesofsurplusunitsanddeficitunits,
andthusencouragebothsavingsandproductivecapitalinvestment.
Intermediariesperformarangeoffunctionsthatareimportanttobothsaversandborrowers:
- AssetTransformation:theabilitytoprovideawiderangeofproductsthatmeetcustomers’portfolio
preferences.Intermediariescanreceivesmallamountsfrommanysaversandpoolthemintolarger
amountsandmakethemavailabletoborrowers
- MaturityTransformation:offeringproductswitharangeoftermstomaturity.Intermediaries
conductliabilitymanagementtoturnshort-termloansintolonger-termborrowings
- CreditRiskDiversificationandTransformation:asaver’screditriskexposureislimitedtothe
intermediary;theintermediaryisexposedtothecreditriskoftheultimateborrower
- LiquidityTransformation:measuredbytheabilityofasavertoconvertafinancialinstrumentinto
cashatsomethingclosetothecurrentmarketpriceofthefinancialinstrument.
Anintermediarymaybeabletolowertransactionfeesbyspreadingfixedcostsacrossalargenumber
oftransactions
- EconomiesofScale:financialintermediariesareabletodevelopcost-efficientdistributionsystems
suchasATMs,EFTPOS,telephoneandinternetbankingetc.
WHOLESALEANDRETAILMARKETS
Institutionalinvestorsinclude:
- Commercialbanks -Buildingsocieties
- Insuranceoffices -Creditunions
- Superannuationfunds -Governmentauthorities
- Investmentbanks -Largecorporations
- Fundmanagers -Financecompanies
- Wholesaleinvestorscanaccumulatelargequantitiesofsurplusfundsandusetheirmarketpowerand
investmentskillstoobtainhigherreturnsthatwouldnormallybeavailableintheretailmarket.
- Wholesaleborrowerscanusetheirgoodcreditstandinginthemarkettoaccessthosefunds
WholesaleMarket:directfinancialflowtransactionsbetweeninstitutionalinvestorsandborrowers
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- Marketparticipantsarepricetakersi.e.financialintermediariescansetbothdepositandlending
ratesofinterest
- Retailinvestorsaren’ttotallyexcludedfromthewholesalemarkets,theyareabletoaccessitthrough
managedinvestmentproductssuchascashmanagementaccountsandunittrusts
MONEYMARKETS
- Consideredshort-termifthetimetomaturityislessthan12months
- Themoneymarketisattractivetoinstitutionalinvestorsasthemarketsare(normally)highlyliquid
andthesecuritiesgenerallyhavewelldevelopedsecondarymarkets
- Itallowsthemtoinvestsurplusfundswhilealsobeingavailableforanyfinancingneeds
- Itisusedbyborrowerstobridgethemismatchbetweentheirshort-termcashexpenditurewiththeir
short-termcashreceipts
MONEY-MARKETSUBMARKETS
Moneymarketscompriseanumberofsubmarketsincluding:
- CentralBank:SystemLiquidityandMonetaryPolicyo Centralbanksusethemoneymarketstocarryouttransactionsthatwillmaintain,orchangethe
amountofliquiditythatisavailablewithinthefinancialsystem
o TheCentralbankimplementsitsmonetarypolicybytargetingthecashrate,hencethecentral
bankcarriesoutmoneymarkettransactionssothatthecashrateremainsatitstargetlevel
- Inter-BankMarketo Thelendingandborrowingofveryshorttermfundsbybanksinthepaymentssystem
- BillsMarketo Discountsecuritiesareshorttermsecuritieswithafacevaluepayableatmaturitysoldataprice
lessthanthefacevalueanddonotofferanyinterest
- CommercialPaperMarketo Commercialpapersarepromissorynotes(discountsecurities)issuedintothemoneymarketby
corporationswithagoodcreditrating
o Somesegmentsofthemarketcomprisetheissueofcommercialpaperswithasset-backed
securitiesbutthismarkethassinceevaporatedduetotheGFCasmanyofthoseassetsturned
outtobesub-primesecuritieswithahighriskofdefault
- NegotiableCertificateofDepositMarketo Adiscountsecurityissuedbythebank
RetailMarket:comprisesoftransactionsprimarilyofindividualsandsmalltomediumsizedbusinesses
MoneyMarkets:wholesalemarketsinwhichshort-termsecuritiesareissuedandtraded
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CAPITALMARKETS
- Consideredshort-termifthetimetomaturityismorethan12months
EQUITYMARKET
EquityMarket:facilitatetheissueoffinancialsecuritiesthatrepresentownershipinterestsinanasset(e.g.stock)
Equityprovidesasourceoflong-termfundingthatdoesnothavetoberepaid.Equityisavailableto:
- Financephysicalinfrastructuresuchasbuildingsandequipment
- Providecreditorconfidenceindealingwiththefirm
- Ensuretheavailabilityoffundstoabsorbabnormallosses
- Improvetheliquidityofthebusiness
CORPORATEDEBTMARKET
Medium-to-longertermdebtinstrumentsissuedintothecorporatedebtmarketinclude:
- Termloans:providedbycommercialandinvestmentbanks
- Commercialpropertyfinance:loanssecuredbyaregisteredmortgageoverthebusinessproperty
beingfinanced
- Debentures:acorporatebond,wheresecurityisgivenintheformofachargeovertheassetsofthe
borrower
- Unsecurednotes:acorporatebondwithnosecurityattached- Subordinateddebt:wheretheclaimsofthedebtholderaresubordinatedagainstotherdebtlenders
- Leasearrangements:periodicleasepaymentsmadeinreturnforborrowinganasset
- Securitization:thesaleofexistingassets,suchasmortgageloanstogeneratenewfunds
GOVERNMENTDEBTMARKET
Governmentsneedtobudgetwithregardtotheircashflowandcapitalexpenditure.
- Governmentfundbudgetdeficitsthroughlong-termborrowingsinbothdomesticandinternational
capitalmarkets
- Ifthegovernmenthasshort-termliquidityfundingneedduetoamismatchofcashinflowsfromm
taxationandcashoutflowstomeetcommitmentssuchaspensionpayments,thismaybemanaged
throughshorttermsecurities
- Asideeffectofgovernmentborrowingsis‘crowdingout’
- Crowdingout:governmentborrowingthatreducesthenetamountoffundsavailableforother
lendinginthefinancialsystem
CapitalMarkets:marketsforlonger-termfunding;includesequity,corporatedebtandgovernmentdebt
andissupportedbytheforeignexchangeandderivativesmarket
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FOREIGNEXCHANGEMARKET
TheForeignexchangemarketfacilitatesthebuyingandsellingofforeignsecurities.
- Financialinstrumentsissuedintheinternationalcapitalmarketsareusuallydenominatedinaforeign
currency
- Therefore,interestpaymentsandprincipalrepaymentsrelatedtointernationaldebtcommitments
requiretheborrowertopurchasethenecessaryforeigncurrencyinordertomakethosepayments
- Foreignexchangeriskistheriskthattheexchangeratebetweencurrencieswillchange
DERIVATIVESMARKET
DerivativesMarketsaremarketsinsyntheticriskmanagementproducts;futures,forwards,optionsandswaps
tohelpborrowersmanageriskassociatedwithcapital-markettransactions
Theprincipalriskstobemanagedinclude:
- Interestraterisk
- Foreignexchangerisk
- Pricerisk
1.4FLOWOFFUNDS,MARKETRELATIONSHIPSANDSTABILITY
- Amodernfinancialsystemfacilitatestheefficientflowoffundsfromprovidersoffundstousersof
funds
- Asstrongfinancialsystemwillencouragesavingsandinvestment,whichshouldleadtoeconomic
growth
- Thesectorialflowoffundsinadomesticeconomycanbedividedintofoursectors:
1. BusinessCorporations
2. FinancialCorporations
3. Government
4. Households
- Anadditionalsectoristhe‘rest-of-the-world’sector
- Asectormaybeasurplusordeficitsectordependingonwhetheritisanetprovideroffundsoranet
useroffunds
- Financialcrises,suchastheGFChaveasignificantdisruptiveimpactontheflowoffundsinthe
financialsystemandhighlighttheimportantofstabilitywithinthefinancialsystem
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2.THEBANKINGSYSTEM
- Thereisadirectcorrelationbetweenthenatureofcommercialbankbusiness,therelativesizeofthe
banksandthelevelofbankregulation
- Mostdevelopedeconomieshavesignificantlyreducedthelevelofbankregulationi.e.deregulationandtherehasthereforebeenconsiderablegrowthinthecommercialbankingsector
Importanceofbanks:amajor“financialintermediation”whichprovidesthefollowingbenefitstothefinancial
system(discussedintopic1)
2.1THEMAINACTIVITIESOFCOMMERCIALBANKING
Thecorefunctionofcommercialbanksistogathersavingsfromdepositorsandinvestors(surplusunits)and
usethosefundsintheprovisionofloanstocustomers(deficitunits).
- Pre-1980sregulated;Assetmanagement:o Abankrestrictsgrowthinitslendingtotheleveloffundsavailablefromitsdepositorbase
- Post-1980sderegulated;Liabilitymanagemento Abankactivelymanagesitssourcesoffunds(liabilities)tomeetfutureloandemands(assets)
o Borrowdirectlyfromdomesticandinternationalcapitalmarkets
o Provisionofotherfinancialservices
o Off-balance-sheet:contingentliabilitiessuchasthepromisetofinancefuturetrade
transactions
Assets Liabilities
- Personaland
housingfinance
- Commercial
lending
- Lendingto
Government
- Otherbankassets
- Currentaccountdeposit
- Calldeposit
- Termdeposit
- Certificatesofdeposit
- Billacceptanceliabilities
- Debtliabilities
- Foreigncurrencyliabilities
Equities
- Loancapital(hybridsecurities)and
shareholders’equity
CommercialBanks:arethemaintypeoffinancialinstitutionthatoperateswithinafinancialsystemand
provideafullrangeoffinancialservices
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2.2SOURCESOFFUNDS
LIABILITIESANDEQUITIES
Sourcesoffundsappearinthebalancesheetaseitherliabilitiesthatthebankwilleventuallyrepayoras
equityfundsprovidedbyshareholders.
Banksofferarangeofdepositandinvestmentproductswithdifferentmixesofliquidity,return,maturityand
cashflowstructuretoattractthesavingsofsurplusentities:
1. Currentaccountdeposits2. Callordemanddeposits3. Termdeposits4. Negotiablecertificatesofdeposit
5. Billsacceptanceliabilities6. Debtliabilities7. Foreigncurrencyliabilities8. Loancapitalandshareholder’sequity
1.CURRENTACCOUNTDEPOSITS
CurrentAccountDeposits:liquidfundsheldinachequeaccount;chequedrawntopurchasegoodsandservices�
- Highlyliquid�- Maybeinterestornon-interestbearing- Interestpaid(ifany)isusuallyquitelowandreflectsthehighlyliquidnatureoftheaccount�
2.CALLORDEMANDDEPOSITS
Callordemanddeposits:fundsheldinsavingsaccountsthatcanbewithdrawnon�demand�
- Heldinaccountsotherthanachequeaccountwherethefundsareavailableondemand
- Generallyreferredtoassavingsaccounts
- Receivesverysmallinterestpaymentsasitisveryliquid
- Traditionallychargetransactionandaccountservicefees
- E.g.passbookaccount,electronicstatementaccountwithATMandEFTPOS�
3.TERMDEPOSITS
Termdeposit:fundslodgedinanaccountforapredeterminedperiodataspecifiedinterestrate
- Term:onemonthtofiveyears
- Lossofliquidityowingtofixedmaturity
- Higherinterestratethancurrentorcallaccountsduetolossofliquidity
- Generallyfixedinterestrate
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4.NEGOTIABLECERTIFICATESOFDEPOSITS
CertificateofDeposit:ashort-termdiscountsecurityissuedbyabank;facevaluerepayableatmaturity
- Issueddirectlyintothemoneymarket- Issuedatadiscounttofacevalue- SpecifiesrepaymentofthefacevalueoftheCDatmaturity- Negotiablesecurity:canbesoldintoadeepandliquidsecondarymarket- Shortterm(30to180days)
5.BILLACCEPTANCELIABILITIES
BillofExchange:ashort-termsecurityissuedintothemoneymarketatadiscounttothefacevalue.Theface
valueisrepaidtotheholderatmaturity.Thebankmayactaseithertheacceptortothebillorthebankmay
discountthebill.
Acceptance
- Bankacceptsprimaryliabilitytorepayfacevalueofbilltoholder
- Issuerofbillagreestopaybankfacevalueofbill,plusafee,atmaturitydate
- Acceptancebybankguaranteesflowoffundtoitscustomerswithoutusingitsownfunds
6.DEBTLIABILITIES
Bond:securitieswhichpayaregularinterestcoupontotheholder,andtheprincipalpaidatmaturity.Interest
canbefixedorvariable.
- Debenture:abondsupportedbyaformofsecurityattachedtoacorporatebond,beingachargeover
theassetsoftheissuer(e.g.collateralizedfloatingcharge)- UnsecuredNote:abondissuedwithnosupportingsecurity
7.FOREIGNCURRENCYLIABILITIES
ForeignCurrencyLiabilities:debtinstrumentsissuedintotheinternationalcapitalmarketsthatare
denominatedinaforeigncurrency
- Allowsdiversificationoffundingsourcesintointernationalmarkets
- Facilitatedmatchingofforeignexchangedenominatedassets
- Meetsdemandofcorporatecustomersforforeignexchangeproducts
8.LOANCAPITALANDSHAREHOLDERS’EQUITY
Sourcesoffundsthathavecharacteristicsofbothdebtandequity(e.g.subordinateddebenturesand
subordinatednotes)
- Subordinatedmeanstheholderofthesecurityhasaclaimoninterestpaymentsortheassetsofthe
issuer,afterallothercreditorshavebeenpaid(excludingordinaryshareholders)
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2.3USESOFFUNDS
ASSETS-USESOFFUNDS
Usesoffundsappearinthebalancesheetasassets
Themajorityofbankassetsareloansthatgiverisetoanentitlementtofuturecashflows(i.e.interest
repaymentofprincipal:
1. Personalandhousingfinance2. Commerciallending3. Lendingtogovernment4. OtherBankAsset
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1.PERSONALANDHOUSINGFINANCE
1.HousingFinance:theprovisionoflong-termfundstoenablethepurchaseofresidentialproperty.Involves
registeringamortgageoverapropertyandpaidthroughregularamortizedloaninstalments.
- Mortgage:aformofsecuritywherebyalenderregistersaninterestoverthetitleofaproperty
- Amortizedloaninstallments:regularandequalloaninstallmentsthatcomprisethecurrentinterest
paymentduepluspartrepaymentoftheloanprincipaloutstanding
Securitization:wherenon-liquidassetssuchasmortgagesaresoldintoatrust;thetrusteeissuesnew
securities;cashflowsfromtheoriginalsecuritiesareusedtorepaythenewsecurities
- E.g.abankgroupsupalargenumberofmortgagesandcombinesthemintoatrust- Thismortgagebackedsecurityisthensoldtoinvestorsforadditionalfunds- Cashflowsreceivedfromthemortgagearethendistributedtoinvestors
2.Investmentpropertyfinance:fundingthatenablesaborrowertopurchasepropertytorentorleasetoathirdparty.Hereabankalsohasaregisteredmortgageovertheproperty
3.Fixed-termloan:aloanprovidedforapredeterminedperiod;usedtopurchasespecifiedgoodsorservices
4.Creditcard:acardfacilitythatprovidesaccesstofundsthroughelectronicdistributionsystem:ATMs,
EFTPOS
2.COMMERCIALLENDING
Involvedbankassetsinvestedinthebusinesssectorandlendingtootherfinancialinstitutions
1.Fixed-termloan:aloanwithnegotiatedtermsandconditions:
- Periodoftheloan- Interestratesi.e.fixedorvariableratessettoaspecifiedreferencerate(e.g.BBSW)àBankBillSwap
Rate(BBSW):theaveragemid-pointofbanksbidandofferratesinthebankbillsecondarymarket- Timingofinterestpayments- Repaymentofprincipal
2.Overdraft:anarrangementwithabankthatallowsabusinesstoplaceitsoperatingaccountintodebitupto
anagreedlimit
3.Commercialbills:abillofexchangeissuedtoraisefinanceforabusiness;adiscountsecurity;maybesold
intothemoneymarket
- Bankbillsheld:Billsofexchangeacceptedanddiscountedbyabankandheldasassetsinsteadofbeingresoldintothemoneymarket
4.Rolloverfacility:anarrangementwherebyabankagreestodiscountnewbillsoveraspecifiedperiodas
existingbillsmature
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5.Leasing:anarrangementinwhichtheownerofanasset,thelessor,allowsalesseetousetheassetin
returnforperiodicleasepayments
3.LENDINGTOGOVERNMENT
1. Treasurynotes(T-Notes)o Short-termdiscountsecuritiesissuedbythecommonwealthgovernment
o Discountsecurity,payableatmaturity
1. Treasurybondso MediumtolongertermsecuritiesissuedbytheCommonwealthgovernment
o Paysaspecifiedinterestcouponstreamperiodically
2. Stategovernmentdebtsecurities
Lowriskandlowreturn
ThereareotherbenefitsofGovernmentsecurities:
- Areaninvestmentalternativeforsurplusfundsthatabankisholding
- Areasourceofliquidityastheycanbeeasilysoldinthesecondarymarketwhenfundsareneededfor
furtherlending
- Providesincomestreamsandpotentialcapitalgains,whereasholdingcashdoesnot
- Maybeusedascollateraltosupportbank’sownborrowingsinthedirectfinancemarkets
- MaybeusedforaRepurchase(REPO)Agreementswiththecentralbankinordertoraiseclearedfundsforpaymentsettlements
- Improvethequalityofthebalancesheetbyholdingagroupofassetswithlower-riskattributes
- Enableabanktomanagethematuritystructure(matchingprinciple)ofitsbalancesheetby
purchasingsecuritieswitharangeofmaturitiesandcashflows
- Allowabanktomanageitsinterestrateriskbybuyingandsellingsecuritieswithdifferentinterest
ratestructures
4.OTHERBANKASSETS
Suchaselectronicnetworkinfrastructureandsharesincontrolledentities
2.4OFF-BALANCESHEETBUSINESS
OBStransactionsareasignificantpartofabank’sbusiness.OBStransactionscanbedividedintofourmajor
categories:
1. Directcreditsubstitutes–SBLC2. Tradeandperformancerelateditems–DocLC
3. Commitments–underwritings,repos4. Foreignexchange,interestratesandothermarketraterelatedcontracts
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1.DIRECTCREDITSUBSTITUTES
Directcreditsubstitute:anundertakingprovidedbyabanktosupportthefinancialobligationsofaclient
- Contingentliabilityenteredforafee
- Includes:guarantees,indemnitiesandlettersofcomfort
2.TRADEANDPERFORMANCERELATEDITEMS
Trade-and-performancerelateditem:anundertakingprovidedbyabanktoathirdpartypromisingpayment
underthetermsofaspecifiedcommercialcontract.
- Documentarylettersofcredit:whereabanksubstitutesitscreditstandingforthatofitsclient- Performanceguarantees:whereabankagreestoprovidefinancialcompensationtoathirdpartyifa
clientdoesnotcompletethetermsandconditionsofacontract
3.COMMITMENTS
Commitments:thecontractualfinancialobligationsofabankthatareyettobecompletedordelivered
- Bankundertakestoadvancefundsormakeapurchaseofassetsatsometimeinthefuturesuchas:
o Forwardpurchasesagreements:whereabankcontractstobuyaspecifiedasseto Underwritings:abankguaranteesaclientthat,subjecttoarangeofconditions,itwillcover
anyshortfallsinfundsreceivedfromaprimarymarketissueofdebtorequitysecuritieso Repurchaseagreements:abanksellsanassetsuchasgovernmentsecurities,onthe
understandingthatthebankwillrepurchasethemataspecifieddate(forahigherprice)o Loansapprovedbutnotyetdrawndowno Creditcardlimitapprovalsthathavenotyetbeenusedbycardholders
4.FOREIGNEXCHANGE,INTERESTRATESANDOTHERMARKETRATERELATEDCONTRACTS
Theuseofderivativeproductstomanageexposurestoforeignexchangerisk,interestraterisks,equityprice
riskandcommodityrisk(i.e.hedging)
- Forwardexchangecontracts:abankcontractstobuyorsellatafuturedateaspecifiedamountofa
foreigncurrencyatanexchangeratethatissettoday
- Currencyswaps:abankexchangesaprincipalamountandongoingassociatedinterestpaymentsthat
aredenominatedinaforeigncurrency
- Forwardrateagreements:acompensationagreementbetweenabankandclientbasedonanotional
principalamount.Onepartycompensatestheotherpartyifinterestratesmoveaboveorbelowan
agreedinterestrate.
- Interestratefuturescontracts:exchange-tradedagreementstobuyorsellaspecificsecurityata
specificpriceatapredeterminedfuturedate
- Interestrateoptionscontract:providestheright,butnottheobligation,tobuyorsellaspecifiedfinancialinstrumentatanagreeddateandprice
- Equitycontracts:includesfuturesandoptionscontractsbasedonspecifiedstockpricesorstockindices.Thesecontractslockintheequitypricetodaythatwillapplyataspecifiedfuturedate
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VOLUMEOFOFF-BALANCESHEETBUSINESS
- TotheextentthattheseOBSactivitiesinvolverisk-takingandpositionsinderivativesecurities,OBS
activitiesraisesomeconcernaboutbankregulation
- Thisisparticularlyimportantconcernwhenthesizeofoffbalancesheetactivitiesisconsidered
- Thenotionalvalueofsuchactivitiesismorethan5timesthetotalvalueofassetsheldbythebanks
2.5REGULATIONSANDPRUDENTIALSUPERVISION
- TheGFChighlightedtheimportanceofeffectiveregulatoryframeworks
- Anumberoffinancialinstitutionscollapsedduringthecrisis�
- Theamountofleverageonthebalancesheetsoftheseinstitutionswasaprimaryfactorcontributing
totheirweakness�
- Debateconcerningbankregulationandprudentialsupervisionhasconcentratedonhowregulators
canmaintainastablefinancialsystem�
- Reasonsforregulationofbanks�
o Importanceofthebankingsectorforhealthoftheeconomy
- Prudentialsupervision
o Impositionandmonitoringofstandardsdesignedtoensurethesoundnessandstabilityofa
financialsystem
AUSTRALIANREGULATORYSTRUCTURE
- ReserveBankofAustralia(RBA):systemstabilityandpaymentssystem
- AustralianPrudentialRegulationAuthority(APRA):prudentialregulationandsupervisionofdeposit-takinginstitutions
- AustralianSecuritiesandInvestmentsCommission(ASIC):marketintegrityandconsumerprotection
- AustralianCompetitionandConsumerCommission(ACCC):competitionpolicy
2.6BACKGROUNDTOCAPITALADEQUACYSTANDARDS
Thebusinessactivitiesoffinancialinstitutionswillinevitablyinvolvetheneedtowrite-offofabnormal
businesslosses
- Liabilitiescannotbewrittenoffasthesemustbepaidwhendue
- HenceCapitalheldbyfinancialinstitutionsservesasthe‘buffer’againstsuchlosses
- Ifcapitalisinadequate,afinancialinstitutionmayfaceinsolvency.
- Thishassignificantimplicationsforthestabilityofthefinancialsystem�
- ThecapitaladequacystandardssetdowninBaselIIandIIIdefinetheminimumcapitaladequacyfora
bank�
- Thestandardsaredesignedtopromotestabilitywithinthefinancialsystem�
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Functionsofcapital
- Sourceofequityfundsforacorporation
- Demonstratesshareholdercommitment�
- Providesfundingforgrowthandsourceoffutureprofits
- Write-offperiodicabnormalbusinesslossesà�absorbslosses/protectsothercreditholders
- Lowerinsurancepremiumsasthefirmbecomeslessrisky
Theevolutionoftheinternationalfinancialsystemledtodevelopmentofinternationalcapitaladequacy
standardsinordertostrengthentheglobalfinancialsystem
- 1988BaselIcapitalaccordandBaselII(2008)capitaladequacyguidelines�- BaselIII(2010)�
2.7BASELIIANDBASELIII
MainelementsofBaselII
- Creditriskofbanks’assetsandOBSbusiness- Marketrisksofbanks’tradingactivities- Operationalrisksofbanks’businessoperations- Formandqualityofcapitalheldtosupporttheseexposures- Riskidentification,measurementandmanagementprocessesadopted�
- Transparencythroughaccumulationandreportingofinformation�
MINIMUMCAPITALADQUACYREQUIREMENT
- Minimumrisk-basedcapitalratioof8%
o Minimum4%heldasTier1capital
§ Highestqualitycorecapital�
o RemaindercanbeheldasTier2(supplementary)capital
§ UpperTier2–specifiedpermanenthybridinstruments�
§ LowerTier2–specifiednon-permanentinstruments�
- Regulatorcanrequireaninstitutiontoholdarisk-weightedcapitalratioabove8%
THEDEFINITIONOFCAPITAL
Tier1Capital:corecapital,consistsofthehighestqualityofcapitalelementsthatfullysatisfyalltheessential
capitalcharacteristics:
- Provideapermanentandunrestrictedcommitmentoffunds
- Theyarefreelyavailabletoabsorblosses
- Theydonotimposeanyunavoidableservicingchargeagainstearnings
- Theyrankbehindtheclaimsofdepositorsandothercreditorsintheeventofwinding-up
- E.g.ordinaryshares,retainedearnings,disclosedreserves,anyminorityinterests
Tier2Capital
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- UpperTier2:consistsofelementsthatareessentiallypermanentinnature,includingsomehybrid
capitalinstruments,mandatoryconvertiblenotes,perpetualsubordinateddebt
- LowerTier2:consistsofinstrumentsthatarenotpermanent–i.e.datedorlimitedlifeinstruments
e.g.termsubordinateddebt
BASELIISTRUCTURALFRAMEWORK
PILLAR1–CAPITALADEQUACY
1.1CREDITRISK
CreditRisk:riskthattheborrowerwillnotmeetcommitmentswhendue.
Therearethreealternativewaysforabanktomeasurecreditrisk:
1. TheStandardisedapproach2. TheFoundationInternal-RatingsBasedApproach(FIRB)
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3. TheAdvancedInternalRatings-BasedApproach(AIRB)
StandardisedApproach:
- Riskweightsappliedtobalance-sheetandOBSitemstocalculateminimumcapitalrequirement
- Riskweightsderivedfromexternalratinggradeorsupervisor
- Forresidentialhousingloans,riskweightrelatestoloan-to-valuationratio(LTVR)andlevelof
mortgageinsurance
- OBSitemsconvertedtobalance-sheetequivalentsbydeterminingthecreditconversionfactorandmultiplyingbytheapplicableriskweighting
- Non-market-relatedOBStransactions,e.g.documentaryletterofcredit
- Market-relatedOBStransactions–creditconversionfactorcanbedeterminedby:
o Currentexposuremethod–currentandpotentialcreditexposuresmark-to-market(contract
revaluedbyitscurrentquotedprice)
o Originalexposuremethod–notionalcontractvaluemultipliedbyacreditconversionfactor
Internalratings-basedapproachinvolvesbanksusingsomeoralltheirownriskmeasurementmodelfactors,
subjecttosupervisorapproval.Twoapproachesavailable:
1. FoundationInternalRatings-BasedApproach(FIRB)a. Bankdeterminesprobabilityofdefaultandeffectivematuritybutreliedonsupervisor
estimatesforothercreditriskcomponents
2. AdvancedInternalRatings-BasedApproach(AIRB)a. Bankprovidesestimatesofallcreditriskcomponents
1.2OPERATIONALRISK
Operationalrisk:riskoflossfrominadequateorfailedinternalprocesses,peopleandsystems,orexternal
eventsE.g.internal/externalfraud,workplacesafety,businesspractices,damagetophysicalassets,systems
failure
Mainoperationalriskmanagementobjectives:
1. Operationalobjectives—impactoflossofbusinessfunctionintegrityandcapability�
2. Financialobjectives—lossesowingtooperationalriskexposure,costofrecoveringoperationsand
ongoingfinanciallosses�
3. Regulatoryobjectives—prudentialstandardsofbanksupervisors�
Businesscontinuitymanagement:isthemaintenanceofstrategiestoensurethecontinuationofcritical
businessfunctions
BaselIIrequiresbankstoholdadditionalcapitaltosupportexposuretooperationalrisk
Withthestandardizedapproachtooperationalrisk,aninstitutionisrequiredtomapanddivideitsactivities
intotwoareasofbusiness:
1. Retail/commercialbanking
2. Allotheractivities
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Institutionmustdocumentitsmappingprocess,detailingpolicyandprocedurestomapthefullrangeof
businessactivities.Thisprocessmustbesubjecttoindependentreview.
1.3MARKETRISK
MarketRisk:riskoflossesresultingfromchangesinmarketratesinFOREX,interestrates,equitiesand
commodities
- Generalmarketrisk:changesintheoverallmarketforinterestrates,equities,FOREXandcommodities�
- Specificmarketrisk:changesinthevalueofasecurityowingtoissuer-specificfactors.Affectsonlyinterestrateandequitypositionsofinstitutions�
Twoapproachestomarketriskcapitalrequirements�
1. Internalmodel—mustbeapprovedbytheprudentialsupervisorandrequiresastatisticalprobability
modelthatmeasuresfinancialriskexposures,i.e.valueatrisk(VaR)2. Standardizedapproach
PILLAR2–SUPERVISORYREVIEWOFCAPITALADEQUACY
Supervisoryreviewprocessisintendedto:
- Ensurebankshavesufficientcapitaltosupportalltheriskexposuresintheirbusiness
- Encouragebankstodevelopanduseimprovedriskmanagementpoliciesandpracticesinidentifying
andmeasuringandmanagingriskexposures
Abank’ssupervisorisexpectedtoevaluatehowwellthebankisactuallyassessingitscapitalneedsrelativeto
itslevelofrisk,andareexpectedtointervenewhenassessmentsseeminadequate.
Pillar2seekstoencouragebankstobetterunderstandandaccountforrisksincompletely/notcapturedin
Pillar1andfactorsexternaltothebank,likeachangingbusinesscycle.
TheBaselcommitteeonBankingSupervisionhasidentifiedfourkeyprinciplesofsupervisoryreview:
1. Banksshouldhaveaprocessforassessingtheiroverallcapitaladequacyinrelationtotheirriskprofile
andastrategyformaintainingtheircapitallevels
2. Supervisorsshouldreviewandevaluatebanks
3. Supervisorsshouldexpectthebankstooperateabovetheminimumregulatorycapitalratiosand
shouldhavetheabilitytorequirethebankstoholdcapitalinexcessoftheminimum
4. Supervisorsshouldseektointerveneatanearlystagetopreventcapitalfallingbelowtheminimum
levelstosupporttheriskcharacteristicsofabankandshouldrequirerapidremedialactionifcapitalis
notmaintainedorrestored
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PILLAR3–MARKETDISCIPLINE
Aimistodevelopdisclosurerequirementsthatallowthemarkettoassessinformationonthecapitaladequacy
ofaninstitution,i.e.increasethetransparencyofaninstitution’sriskexposure,riskmanagementandcapital
adequacy
- Prudentialsupervisorstodetermineminimumdisclosurerequirementsandfrequency�
- BaselIIrecommendsarangeofqualitativeandquantitativeinformationdisclosurerelatingto
principalpartsofPillarsIandII�
BASEIII –BROADFRAMEWORK
BaselIIIwasdevelopedin2010.
- AimstoenhancetheriskcoverageoftheBaselIIframeworkbyenhancingcapitaladequacy
requirements
- ItisgenerallyacceptedthatAustralianADIsarewell-placedtomeettherequirementsoftheBaselIII
Threeprincipalaims:
1. Boostthebankingsector’sabilitytoabsorbshocksarisingfromfinancialandeconomicstress,
2. Improveriskmanagementandgovernance,and
3. Strengthenbanks’transparencyanddisclosure.
1.STRENGTHENCAPITALBASE
- IncreaseminimumTier1capitalto6%(4%inBaselII)ofrisk-weightedassets(RWA)by2015.
- IncreaseminimumCommonEquityTier1capitalto4.5%(2%inBaselII)ofRWAby2015.
- Improvethequalityofcapital(e.g.tighterdefinitionofCommonEquityTier1capitaltoincludeonly
commonstocks,retainedearnings,andothercomprehensiveincome).�
- Createcapitalconservationbuffer(new)foruseduringafinancialcrisisandeconomicdistress.
(Startingfrom0.625%ofRWAin2016andincreasingto2.5%ofRWAby2019.)�
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2.LIQUIDITYREQUIREMENTS
- Minimumliquiditycoverageratio(LCR)toensurebankshavesufficienthigh-qualityliquidassets(HQLA)forexpectednetcashoutflowsovera30-dayperiodstressscenario.�
- Minimumnetstablefundratio(NSFR)toensurethatassetsatgreaterriskofsufferingaone-yearstresseventarematchedwithlongertermsourcesoffinancing.�
3.GOVERNANCE&SYSTEMATICRISKMITIGATION
- Createfirm-widegovernanceandriskmanagement.�
- Requiresoundcompensationpractices.�
- Widencoverageofrisks(e.g.highercapitalrequirementsforsecuritizationexposure,counterparty
creditrisk,OTCactivities,etc.).�
- Createcountercyclicalcapitalbuffer(new)tomitigatesystemicriskduringafinancialcrisisand
economicdistress.�
- Setmaximumleverageratiostopreventexcessleverageingoodtimesandreducethedeleveraging
dynamicinperiodsofstress.�
- Identifyglobalsystemicallyimportantbanks(G-SIBs)forspecialtreatment(e.g.,greaterloss
absorbency,moreintensesupervisoryoversight,strongerresolution,reducingtheirsystemic
importanceovertime,etc.).�
2.8LIQUIDITYMANAGEMENTANDOTHERSUPERVISORYCONTROLS
Liquidity:accesstosourcesoffundstomeetday-to-dayexpensesandcommitments
Tutor’sdefinition:Aliquidmarketisoneinwhichyoucaneasilyfindacounterpartytoyourtrade,inamanner-thatistimely-haslowtonotransactioncostsofwhichthemaintransactioncostisabid-askspread/brokercommission-atfairmarketprice
Bankshavespecialliquidityproblemsowingto:
- Mismatchinmaturitystructureofbalancesheetassetsandliabilitiesandassociatedcashflows�
- Roleofbanksinthepaymentssystem�
LiquidityprudentialstandardAPS210(APRA)
- Theboardofdirectorsandmanagementmustimplementaliquiditymanagementstrategy,whichis
reviewedannually
- Asystemformeasuring,assessingandreportingliquidity
- Manageliquidityrelatedtobalance-sheetandOBSactivities
- Emphasisonbanks’internalliquiditymanagementpractices
- Strategymustincludeacontingencyplan- APRAreservesrighttospecifyminimumlevelofliquidassets�
APRAstipulatesthattwoscenariosmustbeaddressed:
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- Goingconcern:referstothenormalbehaviorofcashflowsintheordinarycourseofbusiness.Abank
mustbeabletospecifyhowitsliquidityobligationsandcommitmentsaretobemetonaday-to-day
basisoveratleastthenext30days- NameCrisis:referstothebehaviorofcashflowsinadverseoperatingcircumstances.Abankmustbe
abletodemonstrateitisaletoaccesssufficientliquiditytokeepoperatingduringthecrisissituation
foratleastfivebusinessdays
SUPERVISORYCONTROL
- APRA’sliquiditystandardAPS210aimstoensurethatbankstonotfaceasituationwheretheyhave
insufficientfundstomeettheirobligations�
- BaselIIIintroducesseveralreformstoliquiditystandards.Thefirstofthese(theLCR)willbecome
effectivein2015�
- ThemostimportantofthesereformsaretheLiquidityCoverageRatio(LCR)andtheNetStableFundingRatio(NSFR)�
- Therequirementwillbefortheseratiostoexceed100percent.InthecaseoftheLCR,thismeansthat
bankswillhavetoallowfora30day‘survivalhorizon’�
- ThisrequirementwillbeseveraltimesstricterthantheexistingAPRAliquiditystandards.APRA’s
currentstandardsallowfora5-daysurvivalhorizon(i.e.Enoughliquiditytosurvivea5dayperiodof
acutestress)�
- Otherregulatoryandsupervisorycontrols:
o Riskmanagementsystemscertification�o Businesscontinuitymanagement�o Audit�o Disclosureandtransparency�o Largeexposures�o Foreigncurrencyexposures�o Ownershipandcontrol�
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