Critically discuss the contribution economic theory has made to the understanding of bank behaviour?
Hamzeh Walid Shamaileh
(In alphabetical order)
Cardiff Business School: Domestic & International Banking Presentation Day
Why do we need a separate theory for banking?
* These theories of banking have a very special significance in the economics of banking
* They position banks on the basis of market conditions such as number of banks in the market, interest rates, information availability, financial autonomy to the institutions, transaction costs, and nature of their banking operations
* providing knowledge into bank behavior
①net interest margin ②credit crunch ③ credit rationin④securitization
NET INTEREST MARGIN
* Net interest margin usually is the measure of how successful is a bank investment decision compared to its debt situation
* a negative value shows that banks had had a bad investment decisions showing that interest expenses were much larger that investment returns, while a positive value shows that banks had an optimal investment decisions gaining it profits and positive returns for that period
* Net interest margin (NIM)
* Total Interest Income - Total Interest Expense/average earning assets
* banks has deposits of 100$ and pays 10$ interest on them and gain 20$ of interest or return of investment on them so 20-10/100=.10% NIM
IMPORTANCE OF NIM
* NIM is usually one of the main aspects in evaluating the bank .
* management system, evaluating what is a good management and a bad one
* profitability of the bank.
* optimal investment decisions by the bank
* liquidity position to ensure an efficient liquidity management and lowering liquidity ratio thus increasing NIM.
DETERMINISTS OF NET INTEREST MARGIN (internatl factors)
* Net interest spreads NIS which is the average difference between...