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Commercial and investment banking:General principles of bank management - Essay Example
Finance & Accounting
Pages 16 (4016 words)
Commercial and Investment Banking Date: Q 1. GENERAL PRINCIPLES OF BANK MANAGEMENT The general principles of bank management include; Liquidity management- involves maintaining asset that can be easily converted into cash…
A bank needs to hold enough excess reserves that can be able to meet all depositors need. This shield the bank from additional cost in meeting the depositors need. Such additional costs include the cost of borrowing from other banks, sale of securities, calling in loans and resulting in borrowing from federal bank. Asset management; a bank need to manage its asset is effectively so as to maximize its profits. This can mainly done through, acquiring liquid assets that have acceptable low level of risk such government securities, diversifying its asset holding portfolio as risk asset management strategy, issuing loans yielding higher interest to borrowers who are deemed safe, last the bank s meet to maintain enough reserve to meet its depositors need without resulting to borrowing in order to save on cost of borrowing. Liability management with the increased innovation and changes in operation of banks operation a banks need to ensure the cost of funds is minimized. This ensures a bank will be able to meet its obligation as the fall due. Capital adequacy management-the manager must decide the amount of capital the bank should maintain and then acquire the needed capital in consideration of the regulation existing in the market. Capital is essential in bank as is prevents failures and also influence returns on common stock holders. Q . ...
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