Discuss the separation of commercial banking and investment banking, over time. Comment on how useful and...

Discuss the separation of commercial banking and investment banking, over time. Comment on how useful and appropriate this separation is today; should this separation be modified?

Solutions

Expert Solution

Separation of commercial and investment banking

Commercial banking is a form of banking that accepts deposits from the customers and lends money to them through various types of loans such as vehicle loan, home loan and new venture loan, etc. Whereas investment banking does not accept deposits and lend money. Investment banks work as a middleman to the new companies and help them to raise money through the initial price offering (IPO) from the stock market. Investment banks usually earn a spread by selling the IPO. There is always a debate whether investment banking activities should be separated from the commercial banking. From 1933 to 1999 investment banks and commercial banks are not merged with each other. However, after that law permitted it to be merged with each other. Many believe that investment banking which involves in the stock market and speculations and futures a lot can make commercial banking to suffer losses. If something goes wrong with the bet made by the investment banking, then the bank can get into the liquidity crunch and can be failed. If both investment bank and commercial banks are together, then financial trouble in investment banking can put crisis into the commercial banking as well. So, both should be separated to avoid catastrophic losses.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

What are the differences between commercial banking, investment banking and hedge funds? Describe their main functions...

What are the differences between commercial banking, investment banking and hedge funds? Describe their main functions and briefly explain the way their balance sheets differ from each other. Lastly explain the regulatory framework that applies to each one of these different types of financial institutions. 500-700 words.

briefly explain how the stock of manufactured capital changes over time: be sure to discuss investment...

briefly explain how the stock of manufactured capital changes over time: be sure to discuss investment and depreciation and be sure to use the “bathtub” model to illustrate the stock of manufactured capital. Explain why the Bureau of Economic Analysis defines depreciation at the consumption of fixed capital.

QUESTION 1 Abonkele Global Bank operates commercial banking. The banking industry for some time is experiencing...

QUESTION 1 Abonkele Global Bank operates commercial banking. The banking industry for some time is experiencing hard times and Chief Finance Officers (CFOs) are finding it difficult to turnaround their treasury and financial health of banks. In a recent breakfast meeting at Abonkele Global Bank, the CFO made the following suggestions: 1. Since most of our clients leave their deposit for a very long time, I suggest we make use of such funds by investing them in real estate business....

Describe the finance function of an investment banking in a global context. Discuss how it affects...

Describe the finance function of an investment banking in a global context. Discuss how it affects the choice of capital structure as well as problems/challenges facing investment banks when accessing capital internationally.

a. Discuss how the core business activities of investment banks and commercial banks are similar and...

a. Discuss how the core business activities of investment banks and commercial banks are similar and different. b. Investment banks often act on behalf of companies involved in a merger and acquisition. Why would a client company use the services of an investment bank in this situation?

Discuss the main sources of risk in commercial banking, and critically discuss the Value-at-Risk (VaR) approach...

Discuss the main sources of risk in commercial banking, and critically discuss the Value-at-Risk (VaR) approach to risk measurement.

is a dot diagram useful for observing trends in data over time?

Time series are particularly useful to track variables such as revenues, costs, and profits over time....

Time series are particularly useful to track variables such as revenues, costs, and profits over time. Time series models help evaluate performance and make predictions. Consider the following and respond in a minimum of 175 words: Time series decomposition seeks to separate the time series (Y) into 4 components: trend (T), cycle (C), seasonal (S), and irregular (I). What is the difference between these components? The model can be additive or multiplicative.When we do use an additive model? When do...

discuss the concept,structure,roles, functions, and products of investment banking bank

How might determining the time since the end of irradiation and time since chemical separation be...

How might determining the time since the end of irradiation and time since chemical separation be relevant to monitring for violations of the Treaty on the Non-Proliferation of Nuclear Weapons?

Subjects