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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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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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Pricing

Ready to get started?

Plans & Membership

Our Platform

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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Self-Funding the Bank Balance Sheet

Self-Funding the Bank Balance Sheet

Moorad Choudhry

25 years: Treasury & ALM

The basic business of banking involves advancing loans to customers and accepting deposits from customers. Moorad covers the basic concept of bank self-funding, which is underpinned by the fundamental premise that a bank must actually fund itself, not print money, in order to lend.

The basic business of banking involves advancing loans to customers and accepting deposits from customers. Moorad covers the basic concept of bank self-funding, which is underpinned by the fundamental premise that a bank must actually fund itself, not print money, in order to lend.

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Self-Funding the Bank Balance Sheet

3 mins 26 secs

Overview

A bank cannot simply print or create its own money in order to lend money. It must actually fund itself in order to lend. Funding the balance sheet requires that a bank has in place a source for obtaining the funds. This can come through three sources; its own funds, its customer's deposits or the wholesale market.

Key learning objectives:

  • Understand how the bank ensures the balance sheet balances

  • Outline the three sources banks can use to raise funds

  • Understand what happens if a bank cannot raise funds from these sources

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Summary

In a nutshell, what does a bank’s balance sheet consist of?

The basic business of banking involves advancing loans to customers and accepting deposits from customers. This together with the bank’s own shareholders’ equity and its portfolio of risk-free liquid assets represents the bank’s balance sheet.

What is fractional reserve banking?

The concept of fractional reserve banking is that a loan is self-funded; every time that a bank advances a loan, it “creates” a deposit of equal notional value alongside it. Thus, the balance sheet balances.

How does the bank ensure the balance sheet balances?

A bank creates a double-entry in its general ledger, so that a £100 loan is simultaneously “balanced” with a £100 deposit, but nevertheless, the bank has to find that £100 itself. It must obtain that £100 from somewhere else in order to be able to fund the £100 loan it has made. It cannot simply create £100 and then lend it on to a borrower.

In order to fund the loan advance, through what sources can the £100 come from?

  • Its own funds, that is, shareholders’ equity. Generally, except for start-up banks, it is not considered good practice to invest one’s own funds in credit-risky assets such as customer loans.
  • Its customers’ deposits.
  • The wholesale market. This will be funds raised either from other banks; or from capital market investors.

What happens if a bank cannot raise funds from these sources?

If a bank seeks to make a loan and can’t fund it from any of these sources, then it will not be able to make the loan. In other words, it won’t be able to advance the loan monies to the borrower.

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