This article named as “liquidity risk and performance of banking system” this article written by “Ahmad Arif”. In this article liquidity risk define for understanding and explain impact of liquidity risk on the performance of banking system. Liquidity risk is that the bank may not be able to meet its obligation. Due to the poor credit controls bank face that type of risk. In this article author says that strength of banking system plays an important role in the economic stability of growth in the country. Banks are the main part of financial sector of any country’s economy. Author says that banks also facilitates many companies and industries and it also creates the main role for the emerging market growth due to the investment, therefore employment …show more content…
This risk may not be covered only by risk management practices. For to overcome this liquidity risk use the different methods like derivatives (it is the financial instrument which use to mitigate the risk). Liquidity risk cause collapse of the banks but it can be reduce or eliminate through pledging, cash reserve and mortgages.
Research problem (impact of liquidity risk and performance of banking system) is very important to address. In this article author deeply understand and address the problem through practiced implications. Author’s claim is valid, in which he addressed the problem by different methodologies like, this liquidity risk may be mitigated by maintaining sufficient cash reserves, raising deposit base, decreasing the liquidity gap and non-performing loans. And this claim of the author is valid for the
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Liquidity risk arises from a banks inability to meet its obligations, when it comes to pay without incurring any unacceptable losses. Liquidity risk always affect negatively on banking performance. Author claim is valid through different evidence. He ensure that risk from research methodology which include “Journals, Books, Annual Reports and unstructured interviews” from risk managers of different 22 banks from the period of 2004-2009. Pakistan banking system is a key engine of economic growth and main lender of public and private sectors. State bank of Pakistan regulate all the banks in Pakistan. Liquidity risk is the main challenge for the banks, when liquidity risk increase, it affect the economic condition where demand of depositors increase for withdrawals. Banks have not the enough balance to provide depositors due to the late payments of borrowings. And due to this many banks are collapsed. In this article author says managing liquidity risk through various methods like derivatives, pre-defined and well established mechanism for identification and mitigating the liquidity risk. Banks should aware about the credit worthiness of borrowers and five C’s of borrowers. Liquidity risk managed by pledging, cash reserves, and mortgage and by finding shortfall and decreasing liquidity gap, enhancing their investment in different
Comprehensive Analysis Liquidity Liquidity is defined as the ability to convert assets quickly into to cash (Liquidity, 2014). A good standing liquidity is good for companies as well as investors and lenders to the company. For the company it’s a great indication as to whether it will meet short term maturing obligations or not. For creditors and investors, a good standing liquidity portrays the ability of how quick a company can pay off debts. Current Ratio (Current assets ÷ Current liabilities)
The banking controversy of the 1830’s became known as The Bank War. It was a campaign started by Andrew Jackson in 1833 to destroy the Second Bank of the United States. He believed that his opposition to the bank had won him national support during his reelection campaign. The Second Bank had been created in 1816 as a successor to the First Bank, whose charter had previously expired. The Second Bank was chartered only for a term of twenty years due to the concerns of many people in Congress.
Banking system is essential in our economics to maintain an effective circulation of money. The bank has functions for regulation of currency to aid strong economy. Distribution of the money is crucial to promote construction of the nation and prevention of bankruptcies. In our modern economic structure is supported and developed by the banking system. However, there was a period that the national bank was shut down by the government the consequence of the bank war.
Gemini Electronics has become a successful electronics company that looks to be growing on an upward slope. We can see where Gemini is booming, as well as where they are lacking, by analyzing their Ratios and Statement of Cash Flow. Liquidity measures a firm’s ability to meet its cash obligations; shown by calculating the Current Ratio and the Quick Ratio. Gemini’s liquidity has slightly increased from 2008 to 2009, but remains below the industry average. An acceptable Current Ratio should be around 2:1, which Gemini has exceeded in 2008 (2.52:1) and 2009 (2.56:1).
Wells Fargo is vigilant in the detection and reporting of suspicious or potential fraudulent activity undertaken by customers and perpetrators. The ongoing advancement of technology continue to introduce new risks and opportunities for fraud. Dr. Tarisa Watanagase (2008) note "the pace and complexity of these advances have vastly accelerated beyond the risk associated with traditional credit and market risk activities. One of those emerging risks in financial institutions is fraud risk, which needs to be effectively controlled through effective governance and sound operational risk management processes" (Dr. Watanagase, 2008). Fraud risks occurs in multiple methods.
Case Study 1: Banc One Corporation Asset and Liability Management Gizem Akkan So basically, the main problem Banc One Corporation has falling share prices as it is written from a 48 ¾ to 36 ¾ in April 1993. The basic reason behind this decline is that its exposure to derivative securities. This decline in share prices raises concerns among the Banc One’s Investors as well as its analysts since they are uncomfortable with huge amount of derivative usage particularly swaps. They think they are not able to measure risks they exposed so this create uncertainity about the firm’s financial stability.
The Financial crisis of 2008 and the following recession has had an enormous impact on the world economy. This has been reflected in a distinctive fall in real GDP growth rate, oil and energy consumption. One of the major contributors to the crisis was the failure in the world wide banking system. This factor could have been left out of the equation if the retail banks were to follow the old system of banking where instead relying on commercial papers and securitization, which are vulnerable to exogenous shocks, they were to rely on deposits from retailers and capital invested. This would mean they would only be vulnerable to runs and insolvency.
Executive Summary Lehman Brothers were an investment bank involved in transactions worth billions of dollars and one of the most powerful investment banks in the world. Lehman Brothers collapsed in 2008 following bad investment in the sub-prime mortgage market and used bad accounting practices called Repo 105 transactions to try and cover up the bad assets. This report sets out the use of the fraud triangle when describing the actions which led to the collapse. The pressure applied on the bank, the opportunity due to the lack of regulation to carry out the actions and the ability of the bank to rationalise their decision making.
In order to identify red flags for risk management from various financial risk ratios, models, and traditional ratios for Bear Stearns and Lehman Brothers, we list our calculation results below. Based on our calculation, Bear Stearns got 15 red flags, which occupied 68% of total red flags, while Lehman Brothers 12 red flags, occupying 55% of total red flags. These two numbers were high even compared with other investment banks, and companies committed fraudulent activities. In summary, both Lehman Brothers and Bear had high possibility of going bankruptcy.
As a consequence of this most moneylenders will have no issue in embracing your secured loan tolerating you are not up to your eyes submerged starting at this
Bank crisis. Differences in banking structure US economy in the 1920s: There were two ways in which commercial banks could be characterised, i.e. nationally chartered banks and banks that were chartered by states. As branching was strictly forbidden by national regulators and most state regulators, this led to a majority of banks being unit banks. Unit banks were a serious problem in the twentieth century Great Depression especially, as it was “a system of banking in which the government restricts or does not permit a bank to open branch offices”.
I would frame the banking as an industry that is built on trust. Trust that is reaffirmed by the governments, and regulators. Banks have an imperative role in our economic growth, and development. Correspondingly, without the bank industry, there is no industry to replace them as the conduit for social and economic policy. Equally important, there is no industry to replace them as the key performer in creating our economies multiplier effect.
In matters of confidentiality, Banking is risky due to the highly sensitive nature of information which is often exchanged, recorded and retained. The purpose of this article is to discuss the clash of confidentiality and disclosure in the banking sector across the globe. The Black’s Law Dictionary defines confidentiality as secrecy or the state of having the dissemination of certain information restricted. Breach of confidentiality, then, refers, to the violation of this trust that has been placed in another in a fiduciary relationship, in this case bank and their customers.
Exposure to credit risk is managed in part by obtaining collateral and corporate and personal guarantees. Counterparty limits are established by the use of a credit classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. Liquidity Risk Liquidity risk is the risk that the company is unable to meet its payment obligations associated with its financial liabilities when they hall due and to replace funds when they are withdrawn. GK’s liquidity management process, as carried out within the Group through the ALCOs and treasury departments includes: o Monitoring future cash flows and liquidity on a daily basis o Maintaining a portfolio of highly marketable and diverse assets that can easily be liquidated as protection against any unforeseen interruption to cash flow o Maintaining committed lines of credit Currency Risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.