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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

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Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Plans & Membership

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Expert led content

+1,000 expert presented, on-demand video modules

Learning analytics

Keep track of learning progress with our comprehensive data

Interactive learning

Engage with our video hotspots and knowledge check-ins

Testing & certification

Gain CPD / CPE credits and professional certification

Managed learning

Build, scale and manage your organisation’s learning

Integrations

Connect Finance Unlocked to your current platform

Featured Content

More featured content

Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

More featured content

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Bank Solvency and Liquidity Risks

Bank Solvency and Liquidity Risks

Chris Blake

Director

The key activities for banks create risks such as credit, liquidity and funding maturity mismatch alongside market risks, both in terms of traded and non-traded. Banks accept these risks and need to have good knowledge, controls and governance to manage them. This video delves into these areas in more depth.

The key activities for banks create risks such as credit, liquidity and funding maturity mismatch alongside market risks, both in terms of traded and non-traded. Banks accept these risks and need to have good knowledge, controls and governance to manage them. This video delves into these areas in more depth.

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Bank Solvency and Liquidity Risks

7 mins 1 sec

Overview

This video considers the main risks that banks run in the hope of making a profit, while, at all times, controlling and managing those risks. It is the decisions to take financial risk that sets banks (and building societies) apart from other types of company. In manufacturing terms, financial risk is the product that bank “manufacture”.

Key learning objectives:

  • Outline the principal risks to which banks are typically exposed

  • Define solvency risks

  • Define liquidity and funding risks

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Summary

What is Risk?

Risk can be described as the effect of uncertainty on a bank’s objectives and can lead to both positive and negative outcomes. In much of finance, risk is seen as some form of volatility along the path to a known outcome.

What are the most valuable components of banking?

  • Financial resources, namely capital and liquidity
  • Regulatory licence to operate e.g ability to take deposits or to participate in payment systems and professional derivative markets
  • Trust and confidence of customers and market counterparties 

What are the principal risks to which banks are typically exposed?

  • Solvency Risk - Solvency is the risk that assets become less valuable than liabilities. When positive, this difference between assets and liabilities is called shareholders’ funds and this also forms the basis of regulatory capital. So the risk is that a bank has negative net assets; in this situation a bank would fail and we call this balance sheet insolvency.

  • Liquidity and funding risk - It is the risk that, despite being balance sheet solvent, the bank is unable to meet its cash and collateral payment obligations as they come due. In this context, funding risk is the risk of not being able to obtain funds, of losing the current funds that are on the balance sheet as liabilities, or not having the correct form of funds to satisfy regulatory requirements. This can be contrasted with liquidity risk, which is the risk of either not having enough assets that can be turned into cash or not being able to turn the assets that you assumed were liquid, into cash at the time you need. 

What are Non - Financial risks?

Non-financial risks are a consequence of doing business, e.g. cyber security and customer data management, outsourcing and, increasingly, the emphasis on climate change risks. These risks typically arise not from what banks do, but how they do it.

 

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Chris Blake

Chris Blake

Chris Blake holds a degree in Economics and Government from the London School of Economics. He is responsible for helping HSBC professionals understand balance sheet risk and return. He has previously worked as a risk specialist in ALM for the FSA. Prior to that, he worked as a money market and interest rate derivatives trader for Investec. Chris is also the Co-chair and Education Director of the UK Asset and Liability Management Association.

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