FİNANSAL PİYASALAR VE KURUMLAR

In the case of direct finance, a saver lends money to parties seeking funds without a financial intermediary such as a bank.

Even if savers lend their funds, there is a likelihood that the borrower may act immorally and engage in a behavior such as lax management of the loan that increases risk after the loan is made. This kind of problem, which stems from asymmetric information is called moral hazard.

Commercial banks create money or credit against deposits through the money multiplier.

An asset-backed security (ABS) is a financial security such as a bond or note, which is collateralized by a pool of assets such as loans, leases, credit card debt, royalties, or receivables.

Savers may make deposits for daily transactions and hold those funds in the form of demand deposits, which allow them to access those funds immediately on demand.

Equity capital or net worth of a commercial bank is the excess of assets over liabilities.

Equity Capital (Net worth) = Total Assets – Total Liabilities

The most important assets of a commercial bank can be categorized as follows:

• Loans

• Securities

• Cash Assets

• Fixed Assets

Loans granted by commercial banks to businesses and individuals constitute the most significant portion of commercial banks’ assets

The main sources of revenue in the form of interest revenue, commissions and fees for a commercial bank are as follows:

• Granting loans

• Investing in marketable securities

• Providing credit cards and debit cards

• Servicing deposit accounts

• Providing financial advice

• Providing wealth management services

• Carrying out foreign exchange

The most important types of risks, which commercial banks face, can be classified as follows:

• Interest rate risk, which arises from the different maturity structure of the banks’ assets and liabilities.

• Liquidity risk, which is the risk that a bank may not be able to meet its cash needs by selling assets or raising funds at a reasonable cost.

• Credit risk, which is the risk of changes in the economic value of the bank’s assets due to unexpected changes in the creditworthiness of counterparties.

• Operational risk, which includes the risk of damages caused by human and technological factors

Assets are items of value owned by businesses at a certain point of time. Those assets include notes and coins, balances with the Central Bank, inter-bank loans, advances, investments, premises and computers. The most important assets of a commercial bank can be categorized as follows:

A commercial bank use the Gap analysis and Duration analysis to measure interest rate risk. Changes in market interest rates affect only interest rate-sensitive assets and liabilities. The main logic behind these concepts is the fact that interest- earning assets and interest-bearing liabilities exhibit different sensitivities to changes in market rates.

Effective risk management is vital for commercial banks to strengthen their profitability, to ensure solvency and guarantee survival. Risk management in commercial banks involve the following processes: