Banking and Management] Assess the advantages and limitations of a?universal bankinga? OR All purpose financial institutions”
You should define the what the Universal bankingor All purpose financial institutionsis.
You could assess the advantages and limitations from the financial statements of banks, measuring and evaluating the performance of banks, determining the long-term objectives, Maximising the value of the firm, Key financial ratios, Macro-prudential analysis, Risk management, Efficiency analysis,Corporate governance practice of Chinese state owned banks etc.
Produce an essay (typed, 1.5 spaced and with Times New Roman fonts size 12) which examines contemporary academic research and actual business practice relating various issues in the Chinese banking sector: (where applicable) on one of the topic.
You should define the what the universal banking is.
You could assess the advantages and limitations from the financial statements of banks, measuring and evaluating the performance of banks, determining the long-term objectives, Maximising the value of the firm, Key financial ratios, Macro-prudential analysis, Risk management, Efficiency analysis,Corporate governance practice of Chinese state owned banks etc. The sample aspects are as following:
Financial statements of banks
Cash and other non-earning assets for regulatory purposes
Trading assets: securities brokerage, trading and underwriting, and derivatives dealing and brokerage
Securities financing transactions: collaterised securities
Investment securities: securities owned for non-trading purpose
CPs: ST negotiable debt instruments to raise unsecured funding
Deposits: mainly high-volume corporate deposits
Trading and principal investments
Investment banking: underwriting and financial advisory services
Asset management, portfolio service fees and commissions
Interest income: wholesale lending activity of the bank
Interest expense: can be very high compared to commercial banks
Operating expenses relates to staff costs
Other cost: communication and technology, fixed assets
Brokerage, clearing and exchange fees
Measuring and evaluating the performance of banks
1) Determining the long-term objectives
The first step in analysing financial statements of banks;
Performance must be directed towards specific objectives;
2) Maximising the value of the firm
Maximise the share price value: attempting to maximise the companyas share value should be considered as the key objective that should have priority over all others;
If the stock fails to rise in value in line with shareholdersa expectations, current investors may sell their shares, making the financial institution hard to raise new capital to support its future growth;
3) Key financial ratios
4) Risk management
5) Efficiency analysis
6) Corporate governance practice of Chinese state owned banks
Bank risk management
Systems and practices used to manage the major types of risks.
Risk mgt deals with the overall process that a bank follows
to define a business strategy,
to identify the risks to which it is exposed,
to quantify those risks,
to understand and control the nature of risks.
Risk measurement function continuously
measures the risk of its current portfolio of assets and other exposures,
communicates the risk profile of the bank to other bank functions,
takes steps either directly or in collaboration with other bank functions to reduce the possibility of loss or to mitigate the size of the potential quantifies risk exposures
The objective is to maximize shareholdersa wealth by managing the trade-off between risk and returns
An effective risk measurement and management system is crucial
The bank must be able to identify, measure, control, and monitor all risks
It is crucial not only to the bankas profitability, but also to its solvency and future survival, as bank crises always arise from an appropriate identification, measurement, pricing or control of risks.
Scale efficiency: costs per unit may be reduced by increasing output (economies of scale)
Scope efficiency: costs per unit may be lowered by joint production (economies of scope)
Technical efficiency: the ability of optimal utilization of available resources either by
producing maximum output given an input level, or
using minimum inputs given an output level
Allocative efficiency: the ability to achieve the optimal combination of inputs and outputs for a given level of prices.
Economic efficiency: is the product of technical efficiency and allocative efficiency.
X-efficiency (Leibenstein, 1966) is attributed to overall objective determinants, such as improvement in management and application of technologies, regardless of size (scale) and product mix (scope).
Within a data set, the best-practice frontier or the worst-practice frontier can be estimated. The difference between the best-practice frontier and the practice of a particular firm reflects its X-inefficiency.
Cost efficiency: the ratio of minimum feasible costs to observed actual costs. 0cost efficiency1.
Revenue efficiency: the ratio of actual revenue of a firm to maximum revenue that could be raised if the firm is fully efficient. 0revenue efficiency1
Profit efficiency: the ratio of actual profit to maximum attainable profit. Profit efficiency1.
Conventional ratio analysis
With the development of estimation techniques, performance is evaluated by more sophisticated techniques, such as least-squares econometric production models, total factor productivity (TFP) indices, and efficiency frontier.
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