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This video will help you understand many of the different types of non-bank financial institutions and Financial market infrastructures that are of relevance to a bank Treasury and the activities of asset and liability management, alongside a proxy economic flow of funds showing how it all comes together in reality.
This video will help you understand many of the different types of non-bank financial institutions and Financial market infrastructures that are of relevance to a bank Treasury and the activities of asset and liability management, alongside a proxy economic flow of funds showing how it all comes together in reality.
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11 mins 36 secs
This video introduces wholesale, or professional, financial institutions that are generally present within markets, outlining what they do and which economic outcome they are looking to achieve by doing it and how it all comes together.
Key learning objectives:
Discuss the different types of non-bank financial institution that you find in markets
Understand the underlying market infrastructures that are of relevance to asset and liability management departments
Understand the flow of money around the system and how it interacts with these institutions
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Investment banks, in their purist form, were not banks and so were not allowed to take deposits from the public. They therefore generally funded themselves with a combination of capital, issued debt, and secured borrowing. However, most are now housed inside commercial banks or have a bank holding company structure.
In addition to the above, they also make markets. They generally do this in the following cash and derivative markets.
Insurance companies are large buyers of assets from the banking sector. They are big buyers of debt and equity, and their liabilities are medium term liabilities. They set their premiums to cover their pay-outs when insured events happen, plus a profit margin.
Insurance companies offer insurance to retail and corporate customers in return for a premium. This includes things like life insurance or non-life, which include car/house/theft.
They manage people’s retirement savings- both defined contribution and defined benefit. They have very long term liabilities, which is the opposite of the banking sector and this gives them a risk called re-investment risk. They therefore try to invest in long term assets and are starting to invest more directly into real assets, rather than via the financial sector as an intermediary.
Asset managers (or fund managers and including hedge funds) take money from the public and turn these into investments, both equity and fixed income (known as bonds) which they generally call “units”.
FMI’s are not banks – They are a wider network of systems that support smooth processing of financial transactions such as cash payment and the settlement of securities transactions.
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