Banking - Asset Management Business

Overview

If fees are ignored, banks are just an asset managment firm, much like a levered fund.

However, banks have a some distinct advantages and disadvantages over being a fund management company. In particular, they enjoy government insurance for their deposits, but are subject to stricter regulation.

Bank Assets

Banks can hold assets an any of a number of asset classes, however, banks typically hold fixed income instruments as their primary asset. In particular, banks often hold on their books the loans that they make to their customers.

Among the common assets that banks are the following:

• Mortgages represent one of the primary assets that banks invest in, and can also be fairly tricky to model.
• Structured Securities
• Consumer Loans
• Commercial Loans

Loan Pricing

Bank Liabilities

• Bank Deposits
  • Consumer Deposits
  • Commerical Deposits
  • State Deposits
  • Brokered Deposits
• Bank Borrowings

Asset Liability Management

Asset Liability Management is the function of optimizing the banks mix of asset and liabilities in order to maximize NII as well as managing risk.