How Banks Make Money: Intro to Banking Course | Part 3

Introduction to Banking - FREE | Corporate Finance Institute®

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This Introductory course covers the fundamental knowledge about the banking industry. We will discuss the various types of financial institutions and how they differ in the types or products and services provided to their own customer groups. We can look at a bank’s balance sheet and income statement and understand how a bank generates return. Finally, we will explore the common career paths in different areas of banking.

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[exxywhf]

This was my assignment.my teacher said we should make a note on banking system and what an awesome job keep it up ma❤

[obawilliam]

Wooow! Just what I have been waiting for to learn!!!
Thanks CFI. Y'all the best!

[andresacunag.]

I just started the FMVA course and I like it so far!

[hasantarek]

Keep up you good work guys. one quick question, why did you guys took the Bloomberg video out?

[judyl.]

0:20 walk through a bank balance sheet.
0:45
Asset:
current asset: cash or equivalent, inventory, account receivable.
non-current asset: property, plant & equipment, long-term investment, and goodwill, intangible assets: patents and trademarks.

Liability + equity:
current liabilities: account payable, part of working capital, current portion of long-term debt.
non-current liabilities: long-term debt
equity: share capital, long-term earnings, working capital interest-bearing liability, the loans the business has, ???

equity is what make up the fund of business.
--- --- --- --- ---
1:40 a typical bank balance sheet:
Asset:
loans: current + non-current.
trading assets: a certain amount of reserve, thus can't make a loan; including cash, brokerage receivables, loans and advances to the other banks, debt securities, and equity instruments. etc.
other assets: goodwill and intangible.

2:30 Liability + equity: the funding of the bank
Deposits: short-term and term deposit.
Trading liabilities:
Debt
Equity

3:20 financial assets and liabilities into those categories:
1. loans & advances to client
2. financial assets and liability at fair value through profit and loss
3. financial assets and liability held for trading
4. financial assets and liabilities held to maturity/ at amortized cost.

3:40 the value of financial assets and liabilities changes during the year:
a gain/loss in a bank's income statement in the year 3:50

4:30 a bank's income statement:
net interest income: income - expense. interest expense is as COGS/ COSS for a typical company. 4:50
non-interest revenue: application, account maintenance fee, and commission.
provision for credit losses: actual and anticipated loss on loans, where clients' likely to default.
net gains/losses on financial assets and liabilities.
total non-interest expense, such as payroll, G&SA,
income before tax,
income tax provision
net income

6:00 net interest income:
6:30 example:

7:05 components of total revenue:
7:50 bring into high fees for its advisory services relevant to underwriting, and its sales and trading activities.
8:15 if the bank has its own trading book, then it can also earn some profits on the sales of investment.
8:30 ATM usage for purchasing physical checks for use.
or fees for insufficient funds or account closure.

8:50 how bank measures returns:
ratio trees for the key levers that executive uses to improve the performance.
goal: maximize or optimize the returns on equity to the shareholders.
this could be further divided into ROA * leverage.
9:50 if there were a sudden market downturn, then impact banks ability to return.

10:25 the impact of leverage:
11:20 leverage has an exponential impact on ROE.

11:40 the operating efficiency:
12:30 the lower the ratio, the better.

13:00 the bank's profit exercise:
13:40 ALM, asset liability matching: the practice of investing, buying, liquidating, and adjusting one's asset to cover its liabilities.
14:00 treasury management
15:00 securitization: risk management tool that to reduce idiosyncratic risk associated with default of individual assets.
reduce the size of balance sheet.
2 steps process 15:30
16:25 sell MBS as tranches.

[gilbertkresna]

Sorry i'm asking out of the topic. But really currious about invested capital, you said the formula is Total Asset - Non interest bearing current liabilitas.
While invested capital is capital from selling stock shares and issuing Bond. Why dont you set the formulas as Equity + Bearing debt - excess cash anyway ???

[javier]

Does anybody know about any video about risk management for banking? thanks!

[humbertocaron]

I really like the way you present it but 😀please double check your math for an efficiency rate of 85% the profit is 15% and not 25%. simply because 100% - 85% = 15%.

[bekhruzshoturaev]

At last I found a video with normal accent, I am literally fucked up with an Indian accent. Thank you CFI, you made my day!