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MindMap Gallery Commercial Bank Operation and Management
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Commercial Bank Operation and Management
A mind map of commercial bank operation and management. Commercial banks aim to maximize profits, raise funds through a variety of financial liabilities, and use a variety of financial assets as their operating objects. They can use liabilities to create credit and provide customers with multi-functional , comprehensive service financial enterprises.
Edited at 2023-07-26 16:03:36
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Commercial Bank Operation and Management
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- Outline
commercial Bank
Chapter 1 Introduction
meaning
Commercial banks are financial enterprises that aim to maximize profits, raise funds through a variety of financial liabilities, operate with a variety of financial assets, use liabilities to create credit, and provide customers with multi-functional and comprehensive services.
nature
Commercial banks have general corporate characteristics
Commercial banks are special enterprises
Commercial banks are different from other financial institutions
Function
Credit intermediary
payment intermediary
Financial Services
credit creation
Regulate the economy
Risk Management
status
Commercial banks have become the center of the entire national economic activity
The business activities of commercial banks have an important impact on the money supply of the whole society.
Commercial banks have become the center of social and economic activities
Commercial banks have become an important way and basis for the country to implement macroeconomic policies.
Commercial banks have become the center of the social capital movement
Business objectives
security goals
Reasonably arrange the scale and structure of assets and pay attention to asset quality
Increase the proportion of own capital in total liabilities
Must abide by the law. Compliance management
liquidity target
Realize assets
Raise funds through debt, by absorbing deposits, borrowing, or expanding shares and increasing capital
profitability target
Maintain appropriate cash assets and expand the proportion of profitable assets
Obtain more funds at the lowest possible cost
Reduce loan and investment losses
Strengthen internal economic accounting, improve bank employee work efficiency, and save management expenses.
Strict operating procedures, improve supervision mechanisms, reduce accidents and errors, and prevent internal personnel from causing major losses to the bank due to violations and criminal activities
The significance of banking supervision
It is conducive to protecting and giving full play to the special role of commercial banks in social and economic activities and promoting healthy economic development.
Helps stabilize the financial system and protect depositors
It can make up for the shortcomings of low disclosure of bank financial information and prevent the "domino effect"
Chapter 2 Capital of Commercial Banks
Capital composition
Commercial banks have the characteristics of dual capital
Owner’s equity is called Tier 1 capital or core capital
Long-term debt is called secondary capital or supplementary capital
The capital composition of commercial banks is based on dual capital.
Equity: common shares, preferred shares, external capital belonging to commercial banks
Common Equity: Best Source of External Capital for Banks
Preferred shares: have the characteristics of common stocks and bonds
fixed dividend rate preferred stock
Adjustable Dividend Preferred Stock
convertible preferred stock
Surplus: capital surplus, retained earnings, equity capital
Capital Surplus: External Capital
Retained earnings: internal capital
Debt capital: capital notes, bonds, external capital
Capital Notes
Bond: more than 10 years
convertible postpayment bonds
Floating Rate Postpayment Bond
Selective Rate Postpayment Bond
Other sources: Reserves
Lending and securities loss reserves
sinking fund
Chapter 3 Operation and Management of Liability Business
Main channels for short-term borrowing
Interbank borrowing
Borrow from the central bank
rediscount
repurchase agreement
European money market borrowing
Main types of financial bonds
General financial bonds
surety bonds and debentures
Fixed rate bonds and floating rate bonds
Ordinary financial bonds, progressive interest rate financial bonds and discount financial bonds
One-time repayment of principal and interest financial bonds and interest-paying financial bonds
capital financial bonds
Subordinated debt
hybrid debt
perpetual bond
Convertible bonds
separable debt
international financial bonds
foreign financial bonds
european financial bonds
Parallel financial bonds
Chapter 4 Cash Asset Business
The composition of cash assets
cash in stock
Deposit at central bank
Place deposits with other banks
funds in transit
Cash Asset Management Principles
The principle of moderation in total amount
timely adjustment principle
Safety and Security Principles
Chapter 5 Loan Business
Loan type
Classification by loan term
demand loan
term loan
short-term loan
medium term loan
long term loan
overdraft
Classification by loan guarantee conditions
Credit Loans
secured loan
Mortgage
mortgage loan
guaranteed loan
Discounted bills
Classification by loan purpose
Classification according to the department of loan objects
industrial loan
Commercial loans
agricultural loan
Technology Loan
consumer loan
According to the specific purpose of the loan
working capital loan
fixed capital loan
Classification by loan repayment method
One-time loan repayment
amortize loan
Classification by loan quality (or risk level)
normal loan
Pay attention to loans
subprime loans
Doubtful loans
loss loan
Classification according to the degree of autonomy of banks in issuing loans
self-operated loan
Entrusted Loan
specific loan
Chapter 6 Bank Securities Investment Business
Functions of bank securities investment
Diversify risks and obtain stable returns
maintain liquidity
Counter economic cycle adjustment measures
Reasonable tax avoidance
Reduce economic capital occupation
Main categories of bank securities investments
treasury bills
medium and long term treasury bonds
government agency securities
municipal bonds
corporate bonds
asset-backed securities
Bank Securities Investment Strategy
Liquidity preparation methods
ladder term strategy
Barbell Structure Method
Interest rate cycle term decision-making method
Chapter 7 Lease and Trust
modern rental
Also known as financial leasing or financing leasing, it is a leasing activity carried out for the purpose of financing.
finance lease
concept
Financial leasing, also known as financial leasing, means that the lessor purchases equipment selected by the lessee from a third party (supplier) selected by the lessee based on the lessee's decision, and leases it to the lessee for use on an uninterrupted basis. During the long-term lease period, the lessor collects rent. Recover all or most of your investment.
Features
Separation of equipment ownership and usage rights
Return in phases
Close integration of capital and material movement
the main form
Direct lease, sublease and leaseback lease
Single investment leases and leveraged leases
Domestic leasing and international leasing
Movable property leasing and immovable property leasing
Enterprise leasing, mixed leasing, manufacturer leasing
Trust business
concept
Trust is a property management system based on credit, centered on property, and entrusted as the method.
type
financing trust
investment trust
property rights trust
Economic Affairs Management Trust
Charitable Fund Trust
Personal and business finance
Chapter 8 Off-balance sheet business
Off-balance sheet business
It refers to the business activities carried out by commercial banks that are not included in the balance sheet according to common accounting standards and do not affect their total assets and liabilities, but can affect the bank's current profits and losses and change the bank's return on assets.
Narrow sense: refers to those operating activities that are not included in the balance sheet, but are closely related to the assets and liabilities business on the balance sheet, and will be converted into the asset business and liability business on the balance sheet under certain conditions. These operating activities are usually called contingent assets and contingent liabilities.
Broadly speaking: processing includes off-balance sheet business in a narrow sense, and also includes risk-free business activities such as settlement, agency, consulting, etc. It refers to all businesses engaged in by commercial banks that are not reflected in the balance sheet. One is contingent debt, and the other is financial services business.
Guarantee business
That is, in response to the application of a certain party in a transaction, the bank promises that the bank will assume all obligations to the other party when the applicant cannot perform the contract.
Mainly include standby letter of credit and commercial letter of credit
Convenience of bill issuance
It is a legally binding commitment to finance the issuance of medium-term circulating notes and is a commitment business of the bank.
: Revolving underwriting convenience, transferable revolving underwriting convenience, multiple bill issuance convenience, and non-underwriting bill issuance convenience
forward rate agreement
A forward interest rate agreement is a forward contract. The buyer and the seller agree on an agreed interest rate for a certain period of time in the future and specify a reference interest rate. On the future settlement date, one party will pay the agreed interest rate to the other party according to the specified period and principal amount. The discount amount is the interest difference between the interest rate and the reference interest rate at that time.
swap business
Swap is a payment activity in which two or more counterparties exchange a series of payments within a period according to pre-established rules.
futures
Futures trading refers to futures contract transactions conducted by both parties in a centralized market through open bidding. A futures contract refers to a standardized contract entered into by two parties that agrees to deliver a certain quantity of a certain commodity on a future date at the price agreed upon at the time of transaction.
options
A financial option is the right to buy or sell a certain amount of an underlying financial product before (or on the expiration date) of the contract. Usually the buyer has the right to execute the contract or to waive the contract, while the seller only has the obligation to execute but not the right to waive the contract.
loan commitment
A loan commitment is a legally binding formal contract between a bank and a borrowing customer. During the effective commitment period, the bank will be ready to provide credit services to the customer at any time according to the amount and interest rate agreed by both parties, and Charge a certain promised commission.
loan for sale
Loan sale means that commercial banks reverse the traditional business philosophy of "banks form and hold loans" and begin to regard loans as salable assets. After the loan is formed, they further adopt various methods to sell loan claims to other investors. The bank selling the loan will receive fee income from it.
Management of off-balance sheet business
Characteristics of off-balance sheet business
Great flexibility
huge scale
Transaction concentration
Huge profits and losses
low transparency
Risks of off-balance sheet business
credit risk
Credit risk refers to the risk that creditors will suffer losses due to problems with the borrower's ability to repay.
market risk
Market risk refers to the risk that creditors will suffer losses due to market price fluctuations
country risk
Country risk refers to the possibility of losses on assets provided by banks to foreign debtors. It is mainly caused by political, economic, military and other factors in the country where the debtor is located.
Transfer risk: refers to the risk caused by the debtor's inability to perform the contract on time due to restrictions on the export of foreign exchange by the country where the debtor is located.
Sector risk: refers to the risk caused by the adjustment of the economic policy of the country where the debtor is located, which affects the operation of the industry or department in which the debtor is located, resulting in the debtor being unable to perform the contract on time.
Sovereign risk: refers to the risk posed to creditors due to changes in the credit rating of the country where the debtor is located (mainly a decline in credit rating).
Liquidity risk
Liquidity risk means that in off-balance sheet business activities, especially in financial derivatives transactions, when a party wants to hedge and close its position in the transaction target, it cannot find a suitable counterparty and cannot use a suitable counterparty. The risk caused by the shortage of funds after the price completes the sell-off in a short period of time.
Financing risk
Financing risk refers to the risk that the bank cannot perform the contract on the maturity date of the transaction due to insufficient own funds and no other available funds.
closely related to liquidity risk. When a bank's liquidity is insufficient, its credit rating will also be affected, making it more difficult to raise funds.
settlement risk
Settlement risk refers to the risk arising from failure to perform contracts in a timely manner during the delivery period after engaging in off-balance sheet business.
Settlement risk exposes banks to credit risk, market risk and liquidity risk.
operational risk
Operational risk refers to the losses caused to the bank due to weak internal control of the bank, errors in the authorization management of operators, errors in the work of business personnel, and the use of computers by internal staff to commit crimes.
Pricing risk
Pricing risk refers to the loss or partial loss of the ability to compensate for risks because the inherent risks of off-balance sheet business have not been fully grasped and cannot be priced correctly.
business risk
Operational risk refers to mismatches in off-balance sheet business, especially financial derivatives transactions, due to errors in bank business decisions, which puts the bank at a disadvantage in transactions, or does not correspond to the timing of capital flows, and it faces risks within a period of time. Risks arising from risk position exposures
information risk
Information risk refers to the losses caused by off-balance sheet business that brings many difficulties to bank accounting processing and fails to truly reflect the bank's financial status. This prevents bank management and customers from obtaining accurate information in a timely manner and makes inappropriate investment decisions.
Management of off-balance sheet business
Commercial banks’ management of off-balance sheet business
Establish a system for off-balance sheet business management
credit assessment system
Business risk assessment system
Double review system
Improve ways to manage off-balance sheet business risks
Focus on cost-effectiveness
Pay attention to leverage ratio management
Pay attention to liquidity ratio management
Supervision of off-balance sheet business activities
Improve the reporting system and strengthen information disclosure
Restrict market access based on credit certification
Strict capital controls to avoid risk concentration
Adjust accounting disclosure methods
Chapter 13 Commercial Bank Operation Risks and Internal Control
The meaning of commercial bank risks
commercial bank risk taker
Commercial banks and their customers are both bank risk bearers
The correlation between return and risk
Returns and risks are generally symmetrical. The risk of a commercial bank is directly proportional to its return. The higher the risk of a bank, the greater the possibility of the bank suffering losses, but the chance of achieving excess returns also increases.
Uncertainties
The uncertain factors faced by bank operations are related to the economic environment in which banks operate, business strategies, bank operators, and the choice of financial instruments.
risk measurement
Commercial banks can identify and judge the extent to which they bear operational risks by measuring the size of risks. Banking risks consist of measurable risks and unmeasurable risks.
Categories of bank risks (according to risks faced by the business)
Liquidity risk
It refers to the risk caused by commercial banks not having enough cash to cover customers’ withdrawal needs and failing to meet customers’ reasonable loan needs or other immediate cash needs.
Interest Rate Risk
It refers to the financial risk that affects the capital losses of assets held by commercial banks and the net balance of bank income and expenditure due to fluctuations in market interest rates.
Credit Risk
Refers to the possibility that the recipient of credit will not be able to repay the loan as promised.
investment risk
It refers to the possibility that commercial banks will suffer losses on their invested principal and expected returns due to future uncertainties.
economic risk
political risk
Moral Hazard
Legal Risk
currency risk
It refers to the uncertainty of the increase or decrease in the value of the foreign exchange assets or liabilities held by a bank due to exchange rate fluctuations in its international business operations.
capital risk
It refers to the risk of commercial banks’ ability to ultimately support debt repayments.