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?

    <p>Indirect allocation of resources</p> Signup and view all the answers

    What are the main sources of funding for banks?

    <p>Deposits, bonds, equity capital</p> Signup and view all the answers

    Where does the income for banks come from?

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

    What are the types of banks that exist?

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

    What are the leading banks in Belgium?

    <p>BNP Paribas, KBC, Belfius, ING</p> Signup and view all the answers

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

    <p>Maturity transformation, liquidity transformation, credit risk transfer</p> Signup and view all the answers

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

    <p>Maturity transformation, liquidity transformation, credit risk transfer</p> Signup and view all the answers

    What are the main assets of banks?

    <p>Cash, loans, securities, fixed assets</p> Signup and view all the answers

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

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

    What do investment banks/brokerages mainly focus on?

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

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

    <p>Insurance banks</p> Signup and view all the answers

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