What is a bank?
“Banks are intermediaries and participants in most financial transactions. They organize the financial space by developing new products, markets, trading forums and rule sets. These aspects are largely unknown to the small investor. S/he knows the bank as an office on a street corner, a place to deposit and retrieve money, make payments and occasionally ask for a loan” (Laulajainen 2003: 226)
- All banks aren't the same - There is a broad distinction between commericial and investment banking...
- Commercial banks borrow and lend, providing finance and customer services
- Investment banks trade debt and securities and finance corporate activities - There is considerable variance within these groups too
The Banking Instituion
Confidence in the banking system is central to the operation of a capitalist economy. They play a key role in liquidity and circulation of money. Governments vastly support banks with finance, but also personal savings and finance are key as well as the global economy.
'Financial Exclusion' - Lack of access to a bank account, can be a barrier to employment, those without a bank account face higher charges for cheque cashing and utilities, also exacerbates vulnerability low income familys.
However, not all of us use banks daily anyway, so those without accounts may not be 'financially excluded'...Ontheotherhand these people then lack the proof of credit record to open loans ect because they dealt in cash...
'We should remain largely a branch based delivery because for some time to come...only a minority of people will have access to other distribution channels' - Building Society Cheif Exec
Failure of Northern Rock
- 2007 UK's 5th largest mortgage lender - mortgage values of £53 billion
- Mortgages based securitised investments
- LIBOR Trading fall US Sub Prime crisis coincided with northern rock failure
- Changes in the interbank lending markets
- Precipitated by concerns over amount, status and location of debt
- Business model put the bank under pressure, funding gap very big, should have been liquidated...
However, the Bank of England grants loan £27 billion, speculation and panic leads to bank run - government had to step in
COPY OFF PPT SLIDE 'PLAN NO. 1'
Failure of Northern Rock
- Net public sector debt in September 2008 was £10.500 pp
- The added cost from nationalising Northern Rock added 14.5% to national debt, at a cost of £1,350pp
- Banking as a social as well as a financial institution
- Banking and finance as ‘down here’ as well as ‘out there’
- But wealth remains extremely unevenly distributed
- Government initiatives to combat financial exclusion underscore the social importance of access to banking