THE PRINCIPLES

OF BANKING
NHAE302

Lecturer: Chu Mai Linh, Ms.

TCH 302
Email: chumailinh.cs2@[Link]

Lecture 1 1
 Module Information

• Module Code NHA302

• Module Title PRINCIPLES OF BANKING
• Lecturer Chu Mai Linh, [Link].
• Credit Value 3 Credit Hrs.
• Textbook
1. Rose, S.P. , Bank Management and Financial Services, 8th ed.,
McGraw-Hill Education (Chapter 1,2,5,6,7,10,12, 16,17,18)
2. Saunders A, Financial Institutions Management, 9th ed, McGraw-Hill
Education (Chapter 1,2,7,8,9,10,20)
3. Koch, T. W., & MacDonald, S. S. (2015). Bank Management (8th
Editio.). Cengage Learning. Education (Chapter
1,2,3,5,7,8,10,11,13,14)
NHA302 - Lecture 1 2
 LEARNING OBJECTIVES
Outcomes

Understanding • Students will be able to explain the business of financial institutions,

the role of financial intermediaries, why financial institutions have
liquidity concerns, concerns regulators have with financial
institutions
Memorizing • Students will be able to remember key terms to help them learn the
language of banking and financial services. Besides, they need to
know the lending process as well as investment activities of the
bank.
Implementation • Students will be able to apply relevant theories to solve all the
questions, case studies and problems. They could apply the
concepts and theories to explain the real situations. In addition, the
lending process can be applied in real circumstances when students
have an internship in the banks.
Analyzing • Students will be able to analyze the real situations in the banking
and financial services.
Judgement • Students will be able to demonstrate their understandings of this
course through ongoing evaluation methods such as in class
exercises, group assignments, midterm examination and final
examination. NHA302 - Lecture 1 3
Syllabus Plan

NHA302 - Lecture 1 4
 Assignments and Assessments
Form of Size of the assessment e.g. % Contribution
Assessment duration/length

Attendance 10% of the final mark

Midterm Exam 60 Mins. 20% of the final mark

PPT Presentation Deadline: 10% of the final mark

as group project May, 26th 2025

Examination 75 Mins. 60% of the final mark

NHA302 - Lecture 1 5
 Chapter 1
Introduction to banking

• Rose – Chapter 1,2

• Saunders – Chapter 1,2
 Learning Objectives

• Introduction • Types of banking

• Why are financial instituions • Key trends affecting all

special? financial services

• Commercial banks • Some facts

• Scope of banking activities

7
NHA302 - Lecture 1
Introduction

Lecture 1 8
 Why are financial intermediaries special?
• Flows of funds in a world without FIs:

• Flows of funds in a world with FIs:

Lecture 1 9
 Why are financial intermediaries special?

• In an economy without FIs:

→Monitoring costs: the level of fund flows is likely to be
quite low
→Liquidity reasons: due to the relatively long-term
nature of corporate equity and debt, and the lack of a
secondary market, household investors don’t have
incentive to hold financial claims (equity and debt
securities) issued by corporations.
→Price risk: investors also face a price risk on sale of
securities.

Lecture 1 10
 Economic functions of FIs
• FIs as Brokers:
→ Due to the economies of scale, FI plays an
extremely important role by reducing transaction and
information costs or imperfections between households
and corporations.
→ The FI encourages a higher rate of savings than
would otherwise exist.

Lecture 1 11
 Economic functions of FIs
• FIs Function as Asset Transformers:
→An FI issues financial claims that are more attractive to household savers
than the claims directly issued by corporations as a result of lower
monitoring costs, lower liquidity costs, and lower price risk.
→FIs purchase the financial claims issued by corporations—equities,
bonds, and other debt claims called primary securities—and finance
these purchases by selling financial claims to household investors and
other sectors in the form of deposits, insurance policies.
• The financial claims of FIs may be considered secondary securities.
Securities issued by FIs and backed by primary securities.

Lecture 1 12
 Information Costs
• Household savers must monitor the actions of firms in a timely and
complete fashion after purchasing securities. Failure to monitor exposes
investors to agency costs.
• FI’s Role as Delegated Monitor
In a sense, small savers have appointed the FI as a delegated monitor to
act on their behalf.
• FI’s Role as Information Producer
→ a menu of contracts may improve the monitoring abilities of FIs, a classic
example of this is the bank loan.
→ bank loans are generally shorter-term debt contracts than bond
contracts.
→ the banker becomes almost like an insider to the firm regarding
informational familiarity with its operations and financial conditions.

Lecture 1 13
 Liquidity and Price Risk
• Often, Fis claims have superior liquidity attributes
compared with those of primary securities such as
corporate equity and bonds.
• The banks transaction account deposit contracts which
allow household savers to withdraw money
immediately.
• How can FIs be confident enough to guarantee that
they can provide liquidity services to investors and
savers when they themselves invest in risky asset
portfolios?

Lecture 1 14
 Liquidity and Price Risk
• The answers to these questions lie in the ability of FIs
to diversify away some but not all of their portfolio
risks.
• As long as the returns on different investments arenot
perfectly positively correlated, by exploiting the benefits
of size, FIs diversify away significant amounts of
portfolio risk—especially the risk specific to the
individual firm issuing any given security.

Lecture 1 15
 Liquidity and Price Risk
• It means that the FIs is able to reduce risk by holding a
number of securities in a portfolio.
• This risk diversification allows an FI to predict more
accurately its expected return on its asset portfolio.
• As long as an FI is sufficiently large to gain from
diversification and monitoring, its financial claims are
likely to be viewed as liquid and attractive to small
savers compared with direct investments in the capital
market.

Lecture 1 16
 Maturity Intermediation
• FI purchases the mortgage and finances the purchase with the issuance
of a liability called a deposit. The deposit, in contrast to the mortgage, is
almost infinitely divisible, highly liquid, and has little default risk.
• The FI effectively swaps deposits for mortgages, thereby modifying the
claims held by its clientele. The FI is rewarded for this service with
interest rate spread between deposits and mortgages.
• If it holds long-term assets financed with short-term liabilities, it will be
exposed to interest rate risk, whereby changes in the shape and position
of the yield curve will affect the FI’s cash flows.
• FIs’ ability to reduce risk by diversification is that they can better bear the
risk of mismatching the maturities of their assets and liabilities than can
small household savers.

Lecture 1 17
 Other Aspects of Specialness
• The Transmission of Monetary Policy
Because the liabilities of depository institutions are a significant
component of the money supply that impacts the rate of inflation,
they play a key role in the transmission of monetary policy from the
central bank to the rest of the economy.
• Credit Allocation
FIs are often viewed as special is that they are the major and
sometimes the only source of financing for a particular sector of the
economy preidentified as being in special need of financing such as
credit needs of residential real estate or farming sector.
• Payment Services
Depository institutions such as banks and thrifts are special in that
the efficiency with which they provide payment services directly
benefits the economy.

Lecture 1 18
 Empirical evidence: Banks are special
• Question: whether bank loans are unique, that is, do they provide any special
service with their lending activity that is not available from other lenders?
• Who provides loans/funds to business firms?
• Commercial banks | Insurance companies |Investment banks|
• Bank Loan Agreements| Privately Placed Debt| Public Straight Debt
• To answer this question we can examine the stock price responses to
announcements of bank loans and other types of debt such as private placements
of debt and public debt issues.
→ The empirical evidence is that there is a positive and statistically significant
stock price response to a borrower’s acquisition of a bank loan.

Lecture 1 19
 Empirical evidence: Banks are special
• Distributions by year of announcements of bank credit agreements, privately
placed debt, and publicly placed straight debt for a random sample of 300
NYSE and AMEX-traded nonfinancial firms for the period 1974–1983

Lecture 1 20
 Empirical evidence: Banks are special
• Descriptive statistics for commercial bank loans, privately placed debt, and
publicly placed straight debt for a random sample of 300 NYSE and AMEX-
traded nonfinancial firms for the period 1974–1983

Firms using private placements and bank loans are on average smaller than firms
using public offerings of debt.
The average firm size in both the bank loan sample and the private placement sample
is about 25% of the average firm size in the public debt sample.
Lecture 1 21
 Empirical evidence: Banks are special
• Average 2-day percentage abnormal stock returns on the announcement of
commercial bank loans, privately placed debt, and publicly placed straight debt
offerings for a random sample of 300 NYSE and AMEX-traded nonfinancial firms for
the period 1974 to 1983

1. The average abnormal stock return for bank loan agreements in table is positive and statistically
significant at the 0.01 level. In addition, two-thirds of the abnormal stock returns are positive.
2. The negative average abnormal stock return associated with the announcement of a public offering of
debt is not statistically significant.
3. The response to the announcement of privately placed debt is –0.91%, which is statistically significant
at the 0.10 level.
Lecture 1 22
 Commercial banks

• Commercial banks have long been one of the most

highly regulated businesses in the world.
• In order to start a bank, investors must select an
experienced management team and board of directors
and have a business plan that explains the bank’s
business strategy and justifies why a new bank is
needed.
• The group must then present its plan to bank
regulators for approval. A newly formed commercial
bank can choose to obtain a charter from its bank
regulator.

Lecture 1 23
 Commercial banks

• A bank is a financial intermediary that offers loans and

deposits and payment services.
• A commercial bank was an entity that both accepted
demand (noninterest-bearing) deposits and made
loans to businesses. A firm that did only one of these or
none of these avoided regulation as a bank.
• Commercial banks make up the largest group of
depository institutions measured by asset size.

Lecture 1 24
 Commercial banks

• Banks no longer limit their service offerings to

traditional services but have increasingly become
general financial service providers.
• Other financial institutions are trying to be as similar to
banks as possible in the services they offer.

NHA302 - Lecture 1 25
 Commercial banks

• Commercial bank liabilities usually include several

types of non-deposit sources of funds.
• Commercial bank loans are broader in range, including
consumer, commercial and real estate loans.
• Within the banking industry, the structure and
composition of assets and liabilities also vary
significantly across banks of different asset sizes.

Lecture 1 26
 Global banks
Super-regional banks
Community banks

• For many years, the United States has had a multi-tiered commercial
banking system including global banks, super-regional banks, and
community banks.
• The biggest firms represent global institutions with a wide array of
products and services for government, business, and individual
customers. They effectively combine commercial and investment banking
and often offer a wide range of insurance and other financial services as
well.
• Super-regional banks are smaller in size and market penetration, but
have extensive operations in specific regions of the country. These banks
generally have limited global operations and offer fewer nontraditional
banking services.
• The final tier consists of banks that operate in limited geographic markets
within the United States. Some of these banks, such as BB&T and, offer
many different types of financial products and services and are expanding
across the United States and have every intent to become national banks.
They are the community banks.
Lecture 1 27
 Size, Structure and Composition of the Industry
• The bigger banks tend to fund themselves in national
markets and lend to larger corporations.
• Their spread (the difference between lending and
deposit rates) often were narrower than those of
smaller regional banks.
• Large banks have focused more on off-balance sheet
activities to generate income.
• Smaller are more efficient in controlling credit risk and
overhead expenses.

Lecture 1 28
 Small vs large U.S. banks

The recent credit crisis 2007-2009 has sharply altered the banking landscape. Many
regulators and analysts expect the number of independent banking organizations to
fall sharply given the loan problems associated with subprime and other mortgages
and commercial real estate.
Among the largest institutions, the U.S. no longer has any “pure” (large)
investment banks. Bear Stearns and Lehman Brothers effectively failed; Merrill
Lynch was sold to Bank of America, and both Goldman Sachs and Morgan Stanley
converted to BHCs.
Lecture 1 29
 Size, Structure and Composition of the Industry
• Breakdown of Loan Portfolios

• Source: Federal Deposit Insurance Corporation, June 2015. [Link]

Lecture 1 30
 BHCs – Bank Holding Companies
• A bank holding company is essentially an organization that owns and manages
subsidiary firms. Any organization that owns controlling interest in one or more
commercial banks is a bank holding company (BHC).
• Control is defined as ownership or indirect control via the power to vote more
than 25 percent of the voting shares in a bank.
• The holding company obtains financing from stockholders and creditors and
uses the proceeds to buy stock in other companies, make loans, and purchase
securities.
• The holding company is labeled the parent organization and the operating
entities are the subsidiaries.

Lecture 1 31
 Bank equity capital as a percentage of total assets

Bank capital/Total Assets= muc do an toan cua bank (thường khoảng 11%)
- trong TH default loan (Ex: 90 ngay KH ko tra loan -> nợ khó đòi -> trên BS: làm asset (loan) của bank giảm thì cũng sẽ làm bank capital giảm

Lecture 1 32
Commercial Bank Profitability.

bank profitability measure by roa and roe

- large commercial bank have greater performance and
profitability

Lecture 1 33
 One-bank holding companies
Multi-bank holding companies

One-bank holding companies

(OBHCs) control only one bank and typically arise when the owners of an existing
bank exchange their shares for stock in the holding company. The holding company
then acquires the original bank stock.
Multi-bank holding companies
(MBHCs) control at least two commercial banks. Large organizations generally form
OBHCs or group a number of independent banks in an MBHC because they want
to control a bank and provide traditional banking services.
Lecture 1 34
 Organizational Structure of Bank Holding Companies

In an OBHC, the subsidiary bank normally operates like an independent bank.

The only difference is that business decisions must now be reconciled with the
objectives and decisions associated with the nonbank subsidiaries.

Lecture 1 35
 FHCs - Financial holding companies
• Financial holding companies (FHCs) are distinct entities from BHCs.
• A company can form a BHC, an FHC, or both.
• The primary advantage to forming an FHC is that the entity can engage in a wide
range of financial activities not permitted in the bank or in a BHC.
• Some of these activities include insurance and securities underwriting and
agency activities, merchant banking, and insurance company portfolio
investment activities.

Lecture 1 36
 Financial Services Business Models

• The principal advantage of being a depository institution (commercial bank,

savings bank, or credit union) has long been access to FDIC deposit insurance.
• The FDIC charges banks a premium for the insurance. If a bank fails, the
government will pay the deposit holder.
• In practice, bank regulators typically find a healthy bank that assumes the
deposit liabilities of a failed bank such that insured deposits are transferred to
the acquiring bank. The FDIC then pays uninsured depositors a fraction of their
uninsured balance on the basis of the liquidation or sale value of the failed
bank’s net assets.
• The primary disadvantage of operating as a bank (or BHC) is that the firm is
subject to regulation as a bank. Access to deposit insurance necessitates federal
government monitoring of a bank’s operations to ensure that management does
not assume excessive risk.

Lecture 1 37
 Transactions Banking versus Relationship Business Models

• Transactions banking involves the provision of transactions services such as

checking accounts, credit card loans, and mortgage loans that occur with high
frequency and exhibit standardized features.
• Because the products are highly standardized, they can be critiqued
mechanically and require little human input to manage. For example, the
decision to make a credit card loan.
• Relationship banking, as the label suggests, emphasizes the personal
relationship between the banker and customer. For example, the key feature of
a loan that is relationship driven and not transactions driven is that the lender
adds real value to the borrower during the credit granting process.
• Transactions banking is not necessarily a substitute for relationship banking and
vice versa, and neither model is inherently better. Analysts generally agree that
as banks increase in size, such banks increasingly emphasize transactions
banking.

Lecture 1 38
 Universal Banking

• The term universal banking refers to a structure for

a financial services company in which the
company offers a broad range of financial products
and services.
• Universal banks combined traditional commercial
banking that focused on loans and deposit
gathering with investment banking.
• There is no consensus on whether universal
banking is successful. The U.S. firms that tried to
achieve this goal of a “one-stop financial
supermarket” have not outperformed more
traditional competitors.
• Critics argue that management cannot successfully
operate such widely diverse lines of business in
which each has different cultures and methods for
compensating key employees. These firms may be
Too Complex to Succeed.

Lecture 1 39
 Too Big to Fail Banks

• Market participants and analysts

quickly labeled the largest firms
receiving the greatest and
immediate government aid as “Too
Big to Fail” or TBTF.
• Regulators and government officials
argued that these firms were too
connected to other large firms, and
a failure would lead to a collapse of
the global financial system and
ultimately to a severe global
recession.
• Numerous studies have also argued
that TBTF firms continue to have an
implicit government guarantee,
which produces lower borrowing
costs and lower operating costs.

Lecture 1 40
The largest U.S. depository institutions in 2021.

Lecture 1 41
 Recent Trends

• The broad trends over the 1951–2015 period in the

four principal earning asset areas of commercial
banks: business loans (or C&I loans), securities,
mortgages, and consumer loans.
• Business loans has been a drop in their importance (as
a proportion of the balance sheet) since 1987. This
drop has been mirrored by an offsetting rise in holdings
of securities and mortgages.

ROA: chỉ measure trên tài sản có thể sinh lời để coi số tiền thu về là bao nhiều
-> operating margin = return on earning assets?

Lecture 1 42
Recent Trends

Lecture 1 43
 Commercial banks

• Commercial banking activity is also regulated.

• All countries have regulations that define what banking
business is. For example, in all EU countries banks
have been permitted to perform a broad array of
financial services activity since the early 1990s and
since 1999 both US and Japanese banks are also
allowed to operate as full-service financial firms.
• In Vietnam, commercial banks activities are monitored
by the State Bank of Vietnam. Bank operations are
defined by Law of Credit Institutions 2010.

Lecture 1 44
 Legal Definition of Commercial Bank
• In Vietnam, according to the Art.4 of Law on Credit Institution 2010,
• 1. Credit institution means an enterprise conducting one. some or all banking
operations. Credit institutions include banks, non-bank credit institutions, microfinance
institutions and people's credit funds.
• 2. Bank means a type of credit institution which may conduct all banking operations
under this Law. Based on their characteristics and operation objectives, banks include
commercial banks, policy banks and cooperative banks.
• 3. Commercial bank means a type of bank which may conduct all banking operations
and other business activities under this Law for profit.

Source:
[Link]

NHA302 - Lecture 1 45
 Law on Credit Institution 2010
The Art.4 Provision 12

12. Banking operations means the trading in and regular

provision of one or some of the following services:
a/ Deposit taking;
b/ Credit extension
c/ Via-account payment.

Lecture 1 46
 Law on Credit Institution 2010
The Art.4
13. Deposit taking means receiving money from an organization or
individual as demand or term deposit, savings deposit, issuing
deposit certificates, bills or treasury bills, and other forms of
receiving deposits on the principles of full payment of principals and
interests to depositors under agreement.
14. Credit extension means an agreement allowing an organization
or individual to use a sum of money or a commitment allowing the
use of a sum of money on the repayment principle by such
professional operations as lending, discount, financial leasing,
factoring, bank guarantee and other credit extension operations.
….
22. Payment account means a client's demand deposit account
opened by a client at a bank to use payment services provided by
such bank.
Lecture 1 47
 Scope of Banking Activities
• “retail” or “commercial” banking covers the more
traditional lending and trust activities, while
“investment” banking covers trading activity and fee-
based income such as stock exchange listing and
mergers and acquisitions
• The one common objective of all banking activity is
return on capital.

Lecture 1 48
Scope of Banking Activities

Lecture 1 49
 Scope of Banking Activities
• Products Sold by U.S Financial Services Industry,1950

• Products Sold by U.S Financial Services Industry, 2016

Lecture 1 50
Traditional vs modern banking

Source: Casu, B. (2006), page 52

NHA302 - Lecture 1 51
 Off-Balance-Sheet Activities

• The balance sheet itself does not reflect the total scope
of bank activities.
• Banks conduct many fee related activities of the
balance sheet.
• Off-balance-sheet (OBS) activities are important.
• OBS activities include issuing various types of
guarantees (such as letter of credit), which often have
a strong insurance underwriting element, and making
future commitments to lend.

Lecture 1 52
 Off-Balance-Sheet Activities
• OBS asset is an item that moves onto the asset side of
the balance sheet when a contingent event occurs.
• OBS liability is an item that moves onto the liability side
of the balance sheet when a contingent event occurs.
• By moving activities of the balance sheet, banks hope
to earn additional fee income to complement declining
margins or spreads on their traditional lending
business.
• OBS activities, however, can involve risks that add to
the overall insolvency exposure of an FI.

Lecture 1 53
Selected banking activities and services

Lecture 1 54
 Changing dynamics of specialness
• Trends in the United State:
• the decline in the total share of depository institutions
• insurance companies also witnessed a secular decline in their share
• increasing trend is the rising share of investment companies (mutual funds and
money market mutual funds)
→Savers increasingly prefer the denomination intermediation and information services
provided by mutual funds,
→an increase in the services provided by investment banks and mutual funds
→services provided by depository institutions (payment services, transaction costs
services, information cost) have become relatively less significant

Lecture 1 55
Lecture 1 56
 Changing dynamics of specialness
• The Rise of Financial Services Holding Companies
• The Financial Services Modernization Act of 1999 opened the
door for the creation of full-service financial institutions in the
United States, which allowed for the creation of “financial
services holding companies” that could engage in banking
activities, insurance activities, and securities activities.
• As a result, assets of financial institutions by functional area, the
financial services holding company (which combines these
activities in a single financial institution) has become the dominant
form of financial institution in terms of total assets.

Lecture 1 57
 Changing dynamics of specialness
• The Shift Away from Risk Measurement and Management and the Financial
Crisis
• a shift in the banking model from that of “originate and hold” to “originate to
distribute”: banks have shifted to an underwriting model in which they originate or
warehouse loans, and then quickly sell them.
Increasing Bank Loan Secondary Market Trading, 1991–2015Q1

Lecture 1 58
 Shadow Banking

• This is the part of the financial system where short-term funding is carried
out with arrangements other than deposits.
• The shadow banking system includes institutions such as investment
banks, brokerage houses, and finance companies.
• A lot of the collateral securing the short-term borrowing in the shadow
banking system is created by securitization structures like asset-backed
securities and asset-backed commercial paper. There are various
investors in the market, including money market mutual funds.
• A commonly used mechanism for short-term funding in the shadow
banking system is the repurchase agreement (or repo). A repo is
essentially a collateralized deposit.

Lecture 1 59
 Bank system in Vietnam
Types of commercial banks Quantities Examples

1 State-owned commercial banks 4 Vietcombank, BIDV,

(SOCB’s) Vietinban; Agribank;
2 Zero-bank wholly-owned by SBV: 3 CB, Ocean Bank, GP
ngân hàng thương mại ko đồng ? Bank;

3 Joint-stock (private) banks 28 (MBB, TCB, ..)

ngân hàng thương mại tư nhân (cổ phần)
4 Joint-venture banks; 2
5 Wholly-owned foreign banks; 9
6 Representative offices of foreign 47
banks;

7 Branches of foreign banks; 49

8 Financial companies; 16

9 Financial leasing companies. 11

Lecture 1 60
Share of banked population in APAC 2018/2019
Share of banked population in APAC 2018/2019

Vietnam

Philippines

Indonesia

China

India
Asia Pacific Countries

Thailand

Malaysia

Taiwan

South Korea

Hong Kong

Japan

Singapore

New Zealand

Australia

0 20 40 60 80 100 120
Share in % , Statista 2020

Lecture 1 61
 ROE and ROA of the Vietnamese banking
ROE and ROA of the banking sector in Vietnam 2014-2018
10.

9.06
9.

8. 7.64
7.51

7.
6.43
6.26
6.
Percentage

5.

4.

3.

2.

1. 0.58 0.7
0.57 0.52 0.57

0.
2014 2015 2016 2017 2018
Data: BIDV, Statista 2020

Lecture 1 62
 Leading joint stock commercial banks
by total asset

Leading joint stock commercial banks Vietnam 2018, by total asset

20.

18.

16.

14.

12.
Percentage

10.

8.

6.

4.

2.

0.
Sacombank Military Bank ACB SHB VPBank Techcombank HDBank Eximbank
Data: BIDV, Statista 2020

Lecture 1 63
 Leading joint stock commercial banks Vietnam
by deposits
(in billion U.S. dollars)
Leading joint stock commercial banks Vietnam 2018, by deposits

16.

14.

12.
(in billion U.S. dollars)

10.

8.

6.

4.

2.

0.
Sacombank ACB Military Bank SHB Techcombank VPBank HDBank Eximbank

Data: BIDV, Statista 2020

Lecture 1 64
 Leading joint stock commercial banks
Vietnam 2018, by equity
Leading joint stock commercial banks Vietnam 2018, by equity
2.5

2.
(in billion U.S. dollars)

1.5

1.

0.5

0.
Techcombank VPBank Military Bank Sacombank ACB HDBank SHB Eximbank
Data: BIDV, Statista 2020

Lecture 1 65
 Leading joint stock commercial banks Vietnam
2018, by loans
Leading joint stock commercial banks Vietnam 2018, by loans

12.

10.

8.
(in billion U.S. dollars)

6.

4.

2.

0.
Sacombank ACB SHB Military Bank VPBank Techcombank HDBank Eximbank

Data: BIDV, Statista 2020

Lecture 1 66
 E-payment services in Vietnam
Most popular e-payment services used among respondents in Vietnam
2020

70.
Value in percentage

60.

50.

40.

30.

20.

10.

0.

Data: Vietnam, Survey, Statista 2020

Lectures 1-2
67
 Try it:#
• Identify and explain three economic disincentives that
would dampen the flow of funds between household
savers of funds and corporate users of funds in an
economic world without financial institutions.
• Identify and explain the two functions FIs perform that
would enable the smooth flow of funds from household
savers to corporate users.

Lecture 1 68
 WEB LINKS
• Federal Deposit Insurance Company [Link]
• Federal Financial Institutions Examination Council
[Link]
• Office of Thrift Supervision [Link]
• Credit Union National Association [Link]
• Morningstar, Inc. [Link]
• Security and Exchange Commission [Link]
• Careers in Finance [Link]
• Bank Job Search [Link]
• Bank Jobs [Link]

NHA302 - Lecture 1 69
Balance Sheet

Lecture 1 70
Income Statement

Lecture 1 71
Profitability Measures

Lecture 1 72
1. Which of the following is false regarding community banks?
a. They typically have assets in excess of $1 billion.
b. They typically operate in a limited geographic area.
c. Community banks often focus on lending to small businesses.
d. A bulk of their funding comes from deposits.
e. They tend to grow at a modest rate.
2. An “independent” bank is:
a. an “independent” subsidiary of a multi-bank holding company.
b. another name for a one-bank holding company.
c. a bank that is exempt from paying federal income taxes.
d. a bank that is specifically created to underwrite corporate debt issues.
e. not controlled by a multi-bank holding company or any other outside interest.

Lecture 1 73
3. Today, the primary motivation behind forming a bank holding company is:
[Link] reduce competition.
[Link] ability to circumvent restrictions on branching.
[Link] broaden the scope of products the bank can offer.
[Link] increase deposit concentration.
[Link] of the above are motivating factors today for forming a bank holding
company.
4. Many insurance companies have formed __________ to operate banks as part
of their financial services efforts.
[Link]-bank holding companies
[Link] holding companies
[Link] subsidiaries
[Link] companies
[Link] holding companies
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 Further Readings
• For a theoretical modeling of the delegated monitor
function, see D. W. Diamond, “Financial Intermediaries
and Delegated Monitoring,” Review of Economic
Studies 51 (1984), pp. 393–414; and A. Winton,
“Competition among Financial Intermediaries When
Diversification Matters,” Journal of Financial
Intermediation (1997), pp. 307–46.

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 Further readings
• James, C. (1987). Some evidence on the uniqueness
of bank loans. Journal of financial economics, 19(2),
217-235.
• Boot, A., Hoffmann, P., Laeven, L., & Ratnovski, L.
(2021). Fintech: what’s old, what’s new?. Journal of
financial stability, 53, 100836.

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