Financial Institutions Management - Week 2 Vocabulary

Flashcards covering key vocabulary and concepts from the Financial Institutions Management lecture.

Financial institutions' specialness

Households might find direct investments in corporate securities unattractive because of monitoring costs, liquidity costs, and price risk.

Transformations performed by Financial Intermediaries

Intermediaries perform asset transformation, maturity transformation, credit risk diversification and transformation, liquidity transformation, and economies of scale.

Payments System

Arrangements which allow consumers, businesses and other organisations to transfer funds usually held in an account at a financial institution to one another

The Wholesale Payment System

High value payments between business and/or government, usually $1m+

The retail payment system

Also known as the consumer payment system. These are all other payments usually substantially less than $1m

Reserve Bank Information and Transfer System (RITS)

Australia’s high-value payments system.

Monetary policy

Implemented by the RBA through changes to the cash rate, which in turn, cause other interest rates to change.

Loans, bills discounted and other receivables

The largest asset category on a bank's balance sheet.

Provisions For Impairment

The bank looks for objective evidence of an impairment loss being incurred on loans, advances and other receivables.

Individually assessed provisions

Made against financial assets that are individually significant, or which have been individually assessed as impaired.

Collectively assessed provisions

All other loans and advances (without an individually assessed provision).

Net Interest Income (NII)

Net interest income (NII) is the difference between interest received on loans/investments and interest paid on borrowings.

Systemic Risk/Contagion

The risk that the failure of one participant in a payments system, or in financial markets generally, will cause other participants or financial institutions to fail to meet their obligations.

G-SIB’s

Globally Systemically Important Banks. They are more tightly regulated.

APRA

The Australian prudential regulator, funded by industry levies (ADIs have to pay APRA).

ADI’s

A type of FI where retail deposits with ADI’s are guaranteed by the Australian Government.

Financial Claims Scheme

A permanent guarantee of $250,000 per account-holder per ADI.