Loan Portfolio Management

The fact that banks control 97% of the world's money supply makes them a vital institution. Banks are the engine of our modern financial system and a source for economic growth. The bank's ability to create credit can have destructive effects; the Great Depression of 1929 and the Great Recession of 2008. In both cases, banks spurred on an asset bubble through overextending credit to aid the purchase of assets. The result was an economic collapse that wiped out wealth and reduced credit creation which stalled productive investments. The lessons of the two great economic collapse support the notion proposed by the author, that bank credit for transactions that do not contribute to the economy should be restricted.

The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions

There are various categories of banking; these include retail banking, directly dealing with small businesses and persons. Commercial and Corporate banking which offers services to medium and large businesses (Koch & MacDonald 2010). Private banking, deals with individuals, offering them one on one service. The last category is investment banking. These help clients to raise capital and often invest in financial markets. Most global banking institutions provide all these services combined. With all these institutions in existence within the same localities and offering similar services, there is a need to regulate the industry so as to protect the consumer and provide fair working environment for all banks (Du & Girma, 2011).

Asymmetric information in lending is a huge risk. When there is misinformation from a lender to a borrower, this can cause a few different problems to arise; for example misinformation about job security or credit history from a borrower to a lender can result in late or missed payments, fraudulent spending of the money lent or the lending amount to be turned as bad debt. Specialization is a tool used for risk management. Specialization in lending helps reduce risk by gathering valuable and accurate information about the borrower. It

Credit risk consists of three parts: the size of the exposure at the time of default, the probability of default occurring, and the loss if the credit event occurs (Fraser & Simkins, 2010). Undoubtedly, a combination of a clear strategy, a knowledge of analytical tools, an understanding of the risk management instruments, responsible oversight, and the ability to be intuitive is crucial to risk management (Bethel, 2016). Wells Fargo is one of the most successful banks in the United States in managing risk. Successfully, they have navigated through risk by choosing a course of action determined by their risk management process (Perez, 2014).

Investment Banking is now at a crucial junction, where Investment and Commercial Banking are splitting up due to the ring fence which is being built around these two banking areas. As well, the new upcoming regulation, Basel III, will have a huge impact in the investment banks, with higher liquidity and capital requirements, in order to increase solvency and stability in financial industries.

The reality of systemic risk made the task of regulating the financial system increasingly complicated, as the crises aren’t contained in one country or market. The extreme inter-dependence between the different agents is the main reason why we need regulation today, as some misconducts can cause a domino effect, affecting markets globally. The structure of the banking system in itself explains this process. In the finance industry, banks borrow money from other banks. If one bank fails, the one who lent the funds in the first place might also follow the same path, creating panic in the markets. The government’s first prerogative is to protect its citizens from these

When investing cash in the short term, it is important for organizations to review the price stability, the safety of the principle, marketability, maturity, and yield of the loan (Cleverley, Cleverley, and Song, 2012). Each of these are important to ensure the loan will improve performance in the cash and investment management area. Organizations that control

Bank’s debt structures and amount of loans reported on balance sheets post crisis had changed due to short-term creditors and borrowers. Banks with more deposit inflows reduced their lending amounts on short-term debt. The failure of Lehman Brothers caused banks to reduce their lending because they were greatly affected by the credit line cuts that came with the failure. Another finding on balance sheets was that there was an increase in commercial and industrial loans. However, that was not driven by growth in loans but rather it was increased through drawdowns on existing credit lines. The cause of the decline was due to the failure of Lehman Brothers along with decisions of firms to cut back on expansion plans because of the recession. The decrease in lending wasn’t only affected by the drop in demand but also the decrease in the amount of supply available at banks. Banks that had less access to deposit inflows and a higher threat to credit line cuts took steps to reduce their lending efforts when compared to other banks. (Ivashina et al., 20) Banks saw more changes in lending amounts when tightening of credit standards came into play as well. By tightening

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have

These banks should ideally be divested of any sort of commercial interest, and must act in the best interest of its nation’s economic stability. A lot of meaning is carried out in being identified as ‘independent’ authority, where the bank possess powers to take its own decisions, approve its own legislature, follow its own policies and offer stability to the nation’s economy.

Banks, specifically, lessen expenses of securing and preparing data about firms and their supervisors and in this manner diminish office costs as they have created ability to recognize great and awful borrowers. Moreover, bank loaning is prone to be critical when financial specialists face ex post good risk issues, with firms of higher recognizable qualities getting from the capital business. Conversely, market-based economies encounter essentially and solidly stronger bounce back than the bank-based ones. In the US, the UK and Japan, the stock exchange assumed an imperative part in financing financial development, while the managing a banking sector assumed a more vital part in Germany, France, Japan and Korea. Besides, the managing a banking sector and stocks in every nation were corresponding to one another during the time spent monetary development aside from the US, where the two segments were gently

Like all businesses, mortgage companies struggle to achieve a proper balance be- tween “risk” and “return” in their operations. The principal risk historically faced by mortgage lenders is the possibility that their clients will be unable or unwilling to pay the principal and interest on their mortgage loans.

Financial regulation is necessary and without an efficient set of regulations a country could see rises in unemployment, interest rates, and the deterioration of financial intermediaries. With the globalization of the financial industry, it becomes more and more common for businesses to seek financing outside of their county 's boarders. These innovations in the financial industry stress why it is so important for regulations to be created and changed to reduce risk and asymmetric information in financial systems.