BANKINGCENTRAL BANKING MK, U 14 RB, pp.26-29
INTRODUCTION “Neither a borrower, nor a lender be.” (from Hamlet, Shakespeare) “If you owe your bank a hundred pounds, you have a problem. If you owe it a million pounds, it has a problem.” (J.M.Keynes)
CURRENT ACCOUNT SAVINGS ACCOUNT DEBIT CARD CREDIT CARD CHEQUEBOOK CASH DISPENSER (ATM) →p. 73 STANDING ORDER LOANS OVERDRAFT MORTGAGE EXCHANGE OF FOREIGN CURRENCY INTERNET BANKING VOCABULARYWHICH OF THESE BANKING SERVICESDO YOU USE?
WHICH VERB IS MISSING? • If I _________money from a bank, I need to ________it one day. • The current account allows me to _______money when I need it. • Banks________high interest to borrowers. • Banks _________low interest to depositors.
WHICH VERB IS MISSING? • Clients who tookout a loan must _________the principal andinterest. • Clientscan _________ a standing order. • Ifyou _________youraccount (are in the red) youpayhighinterest. • Banks _______mortgages to people who need a place to live.
WHICH WORD IS MISSING? • I have a c________account in Zagrebačkabanka. Since I don’t like carrying cash with me I mostly use my d_______ card (cash card) when I go shopping. If I really need cash I find a c______ d_________ nearby. I sometimes use my Diners c_______card as well.
I’m always on the run and I never have time to go to my bank’s branch office to pay bills. That is why I contracted a s______ o________which settles all my regular utility bills. When I’m at home I sometimes use I_______b_________to check my balance.
Every December I go in the red. Luckily, my o_________is quite big so it comes in handy but I pay high interest on it and I try to avoid this option. • I also opened a s_______account to keep money safe long term. It pays a little interest though.
I also took out a l______ to renovate my flat. The i______ is quite high, so I’m thinking whether I should sell this flat and get a m________to buy a house that I’ve always wanted. • In today’s financial crisis I’m afraid my money will run out. Ifitdoes, I’ll probably be forced to e________ the last dollars I still keep under the mattress. RB, 26, 27
READINGTYPES OF FINANCIAL INSTITUTIONS(MK, P. 73) • RETAIL (COMMERCIAL) BANKS • INVESTMENT BANKS • LARGE FINANCIAL CONGLOMERATES (AFTER DEREGULATION) • CENTRAL BANK • HEDGE FUNDS • INSURANCE COMPANIES • BUILDING SOCIETIES… VOCABULARY
CENTRAL BANKING Central banks • implement monetary p________ • supervise exchange r_________ • regulate the credit s________ • supervise commercial b_________ • act as a lender of last r________ • maintain the national currency s________ → LISTENING, MK 2ND ED. TRACK 9, RB p. 29
COLLOCATIONS (LISTENING)CENTRAL BANKS… • IMPLEMENT … • SET… • LIMIT… • SUPERVISE / OVERSEE… • CONTROL… • ESTABLISH… • ENSURE… • INTERVENE… • LEND… • SELL/BUY…
MAKEQUESTIONS BEGINNING WITH HOW/ WHY/ WHEN. USE THE PROMPTS BELOW. e.g. How do central banks implement monetary policy? • MONETARY POLICY • THE MONEY SUPPLY • THE INTEREST RATE • NATIONAL CURRENCY PAIR WORK: ANSWER EACH OTHER’S QUESTIONS.
CENTRAL, RETAIL OR INVESTMENT BANK…? • offers portfolio management services • issues and underwrites securities • exchanges foreign currencies • limits the fluctuations of interest rates • alters the money supply • raises funds for industry • receives deposits • lends money to customers • sets interest rates ceilings and floors • makes a profit from spread • lends to commercial banks • makes a profit from fees and commissions • issues government bonds
READINGNORTHERN ROCK BANK CRISIS (Reader, p.35) VOCABULARY • bank run- the concerted action of depositors who try to withdraw their money from a bank because they think it will fail • shakeout -an elimination of some competing businesses, products, etc., as a result of intense competition in a market of declining sales or rising standards of quality.
credit squeeze- a restraint or limitation of credit; restricted bank lending that is accompanied by rising short-term interest rates and a decline in economic growth • The Treasury -the department of government that has control over the collection, management, and disbursement of the public revenue. • The Chancellor -the British cabinet minister responsible for finance
SUBPRIME MELTDOWN (www.investopedia.com) ANTICIPATE THE ANSWER TO THE QUESTION AT THE END OF THE SENTENCE. • Following the tech bubble and the events of September 11, the Federal Reserve stimulated a struggling economy …HOW? • ..by cutting interest rates to historically low levels.WHAT WAS THE RESULT OF ON THE HOUSING MARKET? • As a result, a housing bull market was created. People with poor credit got in on the action when mortgage lenders created non-traditional mortgages.
Eventually, interest rates climbed back up… WHAT WAS THE CONSEQUENCE FOR BORROWERS? • …and many subprime borrowers defaulted when their mortgages were reset to much higher monthly payments. • This left mortgage lenders with property that was worth …HOW MUCH? • …less than the loan value. • Defaults increased; the problem snowballed, and several lenders (financial institutions) …WHAT HAPPENED TO THEM? • …went bankrupt.
Investors and hedge funds also suffered because lenders had sold mortgages they originated into …WHICH MARKET? • …the secondary market. • Here the mortgages were bundled together and sold to investors as collateralized debt obligations (CDOs) and mortgage-backed securities (MBSs). When the higher risk underlying mortgages started to default, WHAT HAPPENED TO THE VALUE OF ASSETS UNDERLYING THESE SECURITIES?
…investors were left with properties that were quickly losing value. • In the wake of the meltdown, …WHAT DID CENTRAL BANKS DO? • …central banks released liquidity into the market place, which allowed struggling lenders and hedge funds to continue operations and make the necessary payments on their obligations. http://www.youtube.com/watch?v=bx_LWm6_6tA