Objectives of commercial banks Flashcards
(6 cards)
1
Q
Objective of commercial bank
A
profit maximisation. - to appease shareholders so they get more perks 9managers and workers)
2
Q
How can they act as a profit maximiser?
A
- borrow short term and lend long term
- take more risks (less secure loans) - charge higher interest
3
Q
What’s the problem with profit maximisers?
A
more risk of failure
4
Q
Problems if bank fails?
A
- systemic failure
- recession, lost incomes, jobs, output
- bank bailouts = negative externalities (pay more taxes).
5
Q
How can they manage/ prevent bank failure?
A
- more liquidity
- security to manage risk and insolvency
6
Q
What is the problem with these prevents of bank failure?
A
hurts your profits = hurts aims but is worth it as wider consequences could occur.
