Banking Issues in the 21st Century

Vocabulary practiced based on Lecture 2 focusing on 21st-century banking models, specialist roles like clearing and custody, and competitive strategy frameworks.

Niche or Specialist Banking

A banking model defined by focusing on a particular customer segment, having unique expertise, offering select products, or using focused channels.

Generalist Banks

Banks that offer traditional banking services along with a wide range of financial products and investment services.

FimBank Malta

A niche bank cited for its well-developed expertise in Trade Finance and Forfaiting.

Factoring

A select product offered by specialist banks involving the management or financing of accounts receivable.

Capital Markets

The part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments.

Clearing

The preparation of a transaction for settlement through matching, recording, and processing instructions.

Settlement

The exchange of cash or assets in return for other assets or cash and the transference of ownership of those items.

Euroclear

The world's largest clearance and settlement (post-trade) system, set up by JPMorgan Chase in 1968 to settle Eurobonds.

Euroclear Assets (FY 2020)

The assets were valued at $€33 \, \text{trillion}$.

Euroclear Annual Transaction Value

The total value of securities transactions settled is over $€897 \, \text{trillion}$ per annum.

Central Securities Depositary (CSD)

An entity that holds securities centrally on behalf of members to speed the process of clearing and settlement and reduce the possibility of loss.

Custodian Bank

A specialist bank that performs back-office operations including safekeeping of assets, settlement, valuation, and compliance monitoring.

Segregation of Assets

A practice where assets held by a Custodian Bank are kept separate from the bank's own assets to ensure they do not contribute to settling other creditors' claims.

Added Value Services

Non-core custodian activities such as performance measurement, stock lending, and cash management.

Off-balance sheet (OBS) business

Banking products such as letters of credit and derivatives that earn fee income rather than interest income.

Kay's Distinctive Capabilities

The sustainable and inimitable traits of a firm consisting of Architecture, Reputation, and its Ability to Innovate.

Architecture

The establishment of long-term relationships between a bank and its stakeholders, such as employees, suppliers, and customers.

Reputation

A second-order effect of a bank's integrity that ensures depositor confidence in liquidity and borrower assurance that loans will not be called in unnecessarily.

Kay's Strategic Assets

Assets in retail banks that provide sustainable competitive advantage, specifically Financial Strength, the branch network, and a loyal customer base.

Innovation Spiral

The process by which financial innovation continually mutates, standardizing products to deepen markets and accelerate adoption.