Banking¶

Overview¶

Banking risk and regulation¶

Based on brief from ¹:

• Economic unit: The state, companies nad households.

• Transactions take place among these economic units.

• Deficit and Surplus:

• Deficit: Spend more than revenue.

• Surplus: More revenue than their expenditure.

• Modern Financial Intermediation model

flowchart TB
    depositors[Depositors] <-- direct financing --> fm[Financial Markets] <--> borrowers[Borrowers]
    depositors <-- direct financing --> fi[Financial Intermediaries] <--> borrowers
    fm <--> fi
    fm <--> asset[Asset Securitisation] <--> fi

Source: Casu et al (2015)

• Financial intermediation obviously entails costs, but the costs are lower than those for individual economic entities to directly access each other. Financial intermediaries cover their costs and profits from interest rate spreads between loans and deposits

Reference¶