We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Nobody downloaded yet

Banking Regulation and Risks - Coursework Example

Comments (0) Cite this document
Summary
Banking Regulation and Risks Table of Contents Table of Contents 2 Answer 1. 3 Answer 2. 5 References 7 Answer 1. Return on Equity (ROE) is regularly used by banks as a means of measuring performance, potential growth, profitability and managerial compensation, on the basis of comparison of realized ROE with the level of ROE of competing banks…
Download paper
GRAB THE BEST PAPER
Banking Regulation and Risks
Read TextPreview

Extract of sample
Banking Regulation and Risks

One of the reasons for increased leverage generating value for banks is that increased leverage increases the savings from cost of capital obtained from debt funds due to the tax code and subsidized government guarantees. ROE= Net Income/Shareholders Equity ROE can be decomposed to classify the financial drivers of value creation in a company. This is known as DuPont analysis. ROE= Return on assets*leverage Or, ROE= (Net Income/assets)*(assets/shareholders equity) Or, ROE= (Net Income/Revenue)*(Revenue/assets)*(Assets/Shareholders’ Equity) Or, ROE= Net Profit Margin*Asset Turnover*Leverage Thus the three components of ROE is net profit margin, asset turnover ratio and gearing ratio or leverage. The profit margin states the amount of profit made by a bank from its operations. The asset turnover ratio states that how efficient a bank is in using the assets it owns and determines the revenue generated by the bank from its assets. Asset turnover ratio has an inverse relationship with net profit margin. The gearing ratio measures the financial leverage and states that how the bank finances the assets it holds, i.e. the amount of assets per pound of shareholders’ equity investment in the bank. Assets are financed by shareholders’ equity and by creditors, and a higher ratio indicates that the bank is getting more finance from the creditors. Thus greater gearing ratio leads to rise in ROE. Illustration: Consider the following data- Revenue= ?29,261millions Net Income= ?4,212millions Assets= ?27,987millions Shareholders’ Equity= ?13,572millions Net profit margin= Net Income/Revenue= ?4,212millions/?29,261millions= 0.1439=14.39% Asset Turnover= Revenue/Assets= ?29,261millions/?27,987millions=1.0455 Leverage=Assets/Shareholders’ equity= ?27,987millions/?13,572millions= 2.0621 ROE= 0.1439*1.0455*2.0621= 0.3102 = 31.02% ROE of 31.02% to a bank is a good indicator of growth. Still, if a bank decides to not to take leverage so as to become debt-free, then the ROE drop to 15.04%. Even if a bank decides to assume less leverage than the current, ROE will decrease. Thus, from the above illustration it can be said that ROE can be improved through leverage, i.e. leverage is important for the rise and improvement of ROE. Answer 2. Northern Rock, the UK Bank was the most high-profile casualty of the credit crisis of 2007, as in September 2007 the bank suffered run from its depositors. Northern Rock Building Society, a British Bank was formed in 1997 when the society floated on the London Stock Exchange. The bank specialized in mortgage business, and 90% of the assets of the bank were residential mortgages. Rise in growth, profitability and market value was noticed in the bank’s performance since 2001. The shareholders of the bank were benefitted and the management informed that the business model of the bank was effective in bringing about cost control, high quality asset growth, and competitive products with innovative products and transparency. The following graph summarizes the key growth rates for the years 2001-2006. Source: suerf.org, 2009. The huge gap between risk-weighted assets and total assets made by the extensive regulatory arbitrage raised questions in respect to the quality of assets held by the bank. Due to the aggressive policy of Northern Rock, the bank ended up with a leverage to be the highest in the European sector but the capital that was to serve as a cushion against ... Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Banking Regulation and Risks Coursework Example | Topics and Well Written Essays - 750 words”, n.d.)
Retrieved from https://studentshare.net/finance-accounting/101402-banking-regulation-and-risks
(Banking Regulation and Risks Coursework Example | Topics and Well Written Essays - 750 Words)
https://studentshare.net/finance-accounting/101402-banking-regulation-and-risks.
“Banking Regulation and Risks Coursework Example | Topics and Well Written Essays - 750 Words”, n.d. https://studentshare.net/finance-accounting/101402-banking-regulation-and-risks.
  • Cited: 0 times
Comments (0)
Click to create a comment
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
The Global Financial Crisis has as its basis a failure of regulation. A Critical Discussion
The last quarter of 2008 witnessed market failure as well as a regulation failure. Thus it is expected that the global financial crisis will encourage the authorities to strengthen the regulation regime and make new regulations as well.The Global financial Crisis first began in USA’s sub-prime mortgage market.
19 Pages(4750 words)Coursework
Ethical/Legal Risks Assessment
An important factor that largely contributes to ethical issues in nursing informatics is the patients’ confidentiality. This comes in different forms, including the patient’s medical records, their privacy, security, and confidentiality, which matter a lot in nursing ethics.
5 Pages(1250 words)Coursework
Self Regulation And Control
The art of positive psychology involves analyzing personal strengths and weaknesses. According to Keyes & Hadit (2003) positive psychology is a process that incorporates self healing and self therapy technique. The five positive techniques are positive emotions, positive thinking, positive choices, positive strengths and positive habits.
3 Pages(750 words)Coursework
Banking Regulation and Risks
The financial institutions’ credibility also faced serious shocks. Additionally, financial institutions identified certain factors contributing to failure but failed to prioritize that which factors require regulatory changes (Davis, 2011). The banks after the financial crisis have constantly undergone reformation in their regulatory practices.
6 Pages(1500 words)Coursework
Internet Banking Coursework
In banking sector, communication is the key determinant of success, so, it has adapted information technologies right from the invention of Internet, so as to improve their communication with in-house staff as well as the client base. The emergence of Internet Banking has also prompted a number of banks to rethink their strategies of Information Technology in order to sustain in the competitive industry.
38 Pages(9500 words)Coursework
Analyse and discuss the policy objectives behind the regulation of the businesses carried on by banks with reference to the different objectives of the regulation of the deposit taking business and the investment relatedAnalyse whether there are any disad
The practice of banking is such that the banks borrow short and in turn lend long. Where it does this, it takes more interest from the money it has lent that the amount that it gives to depositors. Therefore, a bank can be defined as an intermediary
8 Pages(2000 words)Coursework
Banking Regulation and Risk
Some of the services being offered can be the collection of the deposits from the customers and the lending of money to them. This will also depend with the ability and capability of
14 Pages(3500 words)Coursework
Wheelchair regulation
The first section of the deals with Powered wheelchairs and mobility scooters, also called Invalid Carriages in law (36 to 37). In the Use of Invalid Carriages on Highways Regulations 1988 there are three invalid carriages.
2 Pages(500 words)Coursework
Remote Access Risks
The communication from a client is carried out virtually using the IP. Even though it is secure way of communication, it is public unlike the dial-up (Lewis, 2006). Some of the most
1 Pages(250 words)Coursework
Let us find you another Coursework on topic Banking Regulation and Risks for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us