FIN111 Lecture Notes - Lecture 3: Commercial Bank, Bank Regulation, Savings Account
Week 3
Fin111 Lecture Notes
Commercial Bank Operations!
The Australian Banking Industry!
-There are 15 locally owned banks in Australia!
-The big four banks account for 80% of the total assets of this group of 15
institutions!
-The Australian banking industry is characterised by a few large players and a
group of smaller competitors!
-Banking regulation!
•The banking system plays a key role in the growth and prosperity of the
national economy!
•Australia’s strict regulatory regime had provided much needed resilience and
stability to Australia’s financial system during the global financial crisis!
-Consolidation in the banking sector!
•Consolidation through mergers and takeovers has characterised the Australian
banking sector over the last twenty years!
•Banks have used mergers and takeovers to grow quickly, diversify their
operations and improve their geographical spread!
•While Australian banks have undertaken takeovers of foreign entities, the
Australian government has required no further consolidation of the local market!
•This is the four pillars policy that aims to maintain competition in the banking
sector!
-Banking sheet for a commercial bank!
•The balance sheet lists a business’s assets, liabilities and the owners’
investment (equity)!
•The relationship between these accounts is… assets = liabilities + capital!
The Source Of Bank Funds!
-The principle source of funds for banks is the deposit of accounts: demand,
savings and term deposits!
#1
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Week 3
-Funds sourced from deposits are similar to funds sourced elsewhere except that
deposits take precedence in the event of a bank failure!
-For large banks borrowed funds are a more important source of funds than
deposits. Increased demand for loans has outpaced the growth of deposits and
banks rely on borrowed funds to finance their operations.!
-Deposit accounts!
•Deposit accounts may take three main forms…!
-Transaction accounts - in which the owner is entitled to receive their funds on
demand, which transfers ownership of the funds to others by cheque or
EFTPOS!
-Savings accounts - interest bearing accounts of individuals and partnerships!
-Term deposits - are legally due on a maturity date and the funds cannot be
transferred to others!
-Borrowed funds!
•Borrowed funds are short term borrowings by commercial banks from the
wholesale money markets!
•There borrowings may include bankers acceptances, debt issues and loan
capital (notes and debentures)!
-Capital accounts!
•Bank capital is the ownership funds of the bank!
•Loan and security losses are charged against this account!
•Bank capital may include share capital, retained profits and reserve accounts!
-Bank uses of funds!
•Once raised the funds are used for issuing loans or purchasing investments!
•Loans are contracts between a borrower and the bank and represent an
ongoing relationship between the bank and the customer!
•Investments are contracts issued by large borrowers and purchased by banks.
These are more impersonal and are usually resold by the bank on the
secondary markets!
#2
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Document Summary
There are 15 locally owned banks in australia. The big four banks account for 80% of the total assets of this group of 15 institutions. The australian banking industry is characterised by a few large players and a group of smaller competitors. Australian government has required no further consolidation of the local market: this is the four pillars policy that aims to maintain competition in the banking sector. Banking sheet for a commercial bank: the balance sheet lists a business"s assets, liabilities and the owners" investment (equity, the relationship between these accounts is assets = liabilities + capital. The principle source of funds for banks is the deposit of accounts: demand, savings and term deposits. Funds sourced from deposits are similar to funds sourced elsewhere except that deposits take precedence in the event of a bank failure. For large banks borrowed funds are a more important source of funds than deposits.
