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Reasons for the Existence of Banks and Financial Intermediation

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Reasons for the Existence of Banks and Financial Intermediation

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Questions and Answers

Why do financial intermediaries (banks) exist?

To indirectly allocate resources to those with need and productive use (correct)

To diversify risk through asymmetric information

To directly allocate resources via stock/bond markets

To reduce transaction costs through expertise

What is one of the issues with investing related to asymmetric information?

Ex-post: evaluating the potential for market growth

Ex-ante: determining if a counterparty will repay (correct)

Ex-ante: predicting future market trends

Ex-post: analyzing past market performance

How can financial intermediaries reduce transaction costs?

By diversifying risk through asymmetric information

By offering standardized contracts and conditions (correct)

By predicting future market trends

By directly allocating resources through stock/bond markets

What indicates the existence of financial intermediaries like banks?

Indirect allocation of resources Signup and view all the answers

What are the main sources of funding for banks?

Deposits, bonds, equity capital Signup and view all the answers

Where does the income for banks come from?

Lending, investing in other financial assets yielding a return, providing services Signup and view all the answers

What are the types of banks that exist?

Retail bank / commercial bank, Wholesale bank (corporate bank), Investment bank/brokerage, Universal bank Signup and view all the answers

What are the leading banks in Belgium?

BNP Paribas, KBC, Belfius, ING Signup and view all the answers

According to the Financial Stability Board (FSB), what are the key aspects of financial intermediation?

Maturity transformation, liquidity transformation, credit risk transfer Signup and view all the answers

What risks do banks run according to the Financial Stability Board?

Maturity transformation, liquidity transformation, credit risk transfer Signup and view all the answers

What are the main assets of banks?

Cash, loans, securities, fixed assets Signup and view all the answers

Which act allowed universal banking in the EU since 1989 and in the US since 1999?

Second Bank Directive (1989), Financial Services Modernization Act (1999) Signup and view all the answers

What do investment banks/brokerages mainly focus on?

Fee/commission generating business (asset management,M&A , proprietary trading) Signup and view all the answers

What is NOT a type of bank mentioned in the text?

Insurance banks Signup and view all the answers