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ORGANIZATIONAL SET UP OF Financial Institutions

ORGANIZATIONAL SET UP OF Financial Institutions. Functions of Financial Institutions. 1. Aids the flow of capital 2. Credit allocation 3. Provides economies of scale and scope 4. Satisfies the needs of general public 5. Provides specialization and expertise

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ORGANIZATIONAL SET UP OF Financial Institutions

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  1. ORGANIZATIONAL SET UP OF Financial Institutions

  2. Functions of Financial Institutions • 1. Aids the flow of capital • 2. Credit allocation • 3. Provides economies of scale and scope • 4. Satisfies the needs of general public • 5. Provides specialization and expertise • 6. Assists asset transformation • 7. Offers INTERMEDIATION

  3. Intermediation • The process of transforming a secondary security into a primary security by a financial institution. • It relates to financial investments by savors

  4. Dis-intermediation • The process of reversing or rejecting the transfer of funds into the financial institutions. • This refers to the low deposit interest rates or high operating costs charge to customers.

  5. Illustration of Disintermediation • The removing of Middlemen • The dis- or re-channeling funds flow from the FI • Changing Role to the Servicing of Markets • Security Investments • Mutual Funds • Insurance

  6. Types of Intermediation • 1. Liquidity • 2. Maturity • 3. Denomination • 4. Risk

  7. Types of Financial Institutions • By Banking Business Nature: • Banks • Non-Banks • Non-Finance

  8. By Business Operations: • Thrift type • Contractual type • Investment type • Other type

  9. Thrift-type Financial Institutions • Banks: • Commercial Banks • Savings Banks • Investment Banks (Merchant Banks) • etc • Non-Banks: • Deposit-taking Company, Savings and Loan, Home Loans, Building Society, • Credit Unions

  10. Contract-type Financial Institutions • Insurance Companies: • Life Insurance • Accident and Healthy Insurance • Pension Funds: • Mandatory Providence Funds • Retirement Funds/Pension Funds

  11. Investment-type Financial Institutions • Investment Companies: • Closed-end Investment Companies - Investment Brokers • Open-end Investment Companies - Mutual Funds/Unit Trust • Real Estate Trust Investment Companies

  12. Other Financial Institutions • Finance Companies • Factors Companies • Lease Companies • Mortgage Companies • Credit Card Companies • Non-finance Financial Institutions: • General Electric, Ford Motors, Toyota Motors • wholesalers, Manufactures, Department Stores

  13. Why Financial Institutions? • Fulfill economic goals • Reduce transaction and information costs • Provide liquidity • Prevent risks • As transmission of monetary policy • Provide payment mechanism • Supply credit allocation

  14. Analysis of Financial Institutions • 1. Transaction Costs • 2. Information Asymmetry -- Moral Hazard • 3. Financial Risks • 4. Financial Innovation

  15. Solution • Information Asymmetry--Moral Hazard: • Information Symmetry and Full Disclosure • Regulation Reform • Financial Intermediation • Financial Risks: • Risk Management and Control • Burden Administration

  16. Solutions • Financial Innovations: • Enhance Internal Control-- • Planning, Control, and Administration • Tighten Asset Management and Quality • Modernized Operation System • Strengthen Regulation and Monitoring

  17. Duties of the Management of Financial Institutions • 1. Determining the optimal capital structure • Assets, Liabilities, and Capital • 2. Managing interest rate/currency/credit risks • 3. electing/Pricing investments and liabilities • Maturity Matching, Profit Making • 4. Operating effectively • Information Processing • Communication Technology

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