Credit risk, liquidity risk and ban

Credit risk, liquidity risk and banking crises
In transforming savers’ deposits into loans for those that wish to borrow, the traditional banking business model entails the bank taking on credit risk and liquidity
risk.(2) Credit risk is the risk of a borrower being unable to repay what he or she owes to a bank. This causes the bank to make a loss. This is reflected in a reduction in the size of the bank’s assets shown on its balance sheet: the loan is wiped out, and an equivalent reduction must also be made to the other side of the balance sheet, by a reduction in the bank’s capital. If a bank’s capital is entirely depleted by such losses, then the bank becomes ‘balance sheet insolvent’ — illustrated on the left-hand column of the figure on the first page of this article — that is, its liabilities exceed its assets
Liquidity risk takes on a number of forms. Primarily for a bank, it is the risk that a large number of depositors and investors may withdraw their savings — that is, the bank’s funding — at once, leaving the bank short of funds. Such situations can force banks to sell off assets — most likely at an unfavourably low price — when they would not otherwise choose to. If a bank defaults, being unable to repay to depositors and other creditors what they are owed as these debts fall due, it is ‘cash-flow insolvent’. This is illustrated on the right-hand column of the figure on the first page of this article. A bank ‘run’ — where many depositors seek to withdraw funds from the bank — is an extreme example of liquidity risk. The failure of a bank can be a source of financial instability because of the disruption to critical economic services. Moreover, the failure of one bank can have spillover effects if it causes depositors and investors to assume that other banks will fail as well. This could be because other banks are considered to hold similar portfolios of loans — that might also fail to be repaid — or because they might have lent to the bank that has failed.

Kết quả (Anh) 1:

Credit risk, liquidity risk and banking crises In transforming savers ' deposits into loans for those that wish to borrow, the traditional banking business model entails over-the-counter the bank taking on credit risk and liquidityrisk. (2) Credit risk is the risk of a borrower being unable to repay what he or she owes to a bank. This causes the bank to make a loss. This is reflected in a reduction in the size of the bank's assets shown on its balance sheet: the loan is wiped out, and an equivalent reduction must also be made to the other side of the balance sheet, by a reduction in the bank's capital. If a bank's capital is entirely depleted by such losses, then the bank becomes ' balance sheet insolvent ' — illustrated on the left-hand column of the figure on the first page of this article — that is, its liabilities exceed its assets Liquidity risk takes on a number of forms. Primarily for a bank, it is the risk that a large number of depositors and investors may withdraw their savings — that is, the bank's funding — at once, leaving the bank short of funds. Such situations can force banks to sell off assets — most likely at an unfavourably low price — when they would not otherwise choose to. If a bank defaults, being unable to repay depositors and other creditors to what they are owed as these debts fall due, it is the ' cash-flow insolvent '. This is illustrated on the right-hand column of the figure on the first page of this article. A bank ' run ' — where many depositors seek to withdraw funds from the bank — is an extreme example of liquidity risk. The failure of a bank can be a source of financial instability because of the disruption to critical economic services. Moreover, the failure of one bank can have spillover effects if it causes depositors and investors to assume that other banks will fail as well. This could be because other banks are considered to hold similar portfolios of loans — that might also fail to be repaid — or because they might have lent to the bank that has failed.

Kết quả (Anh) 2:

Credit risk, Liquidity risk and banking crises
In transforming savers' deposits for loans Into wish to borrow những mà, the traditional banking business model entails the bank taking on credit risk and Liquidity
risk. (2) Credit risk is the risk of a borrower being không repay what he owes to a bank or SHE. This Causes the bank to make a loss. This is Reflected in a reduction in the size of the bank's assets Shown on its balance sheet: the loan is wiped out, and an equivalent reduction phải am also be made ​​to the other side of the balance sheet, by a reduction in the bank's capital. If a bank's capital is entirely depleted by such 'losses, then the bank Becomes' balance sheet insolvent' - Illustrated on the left-hand column of the figure on the first page of this article - nằm, its Liabilities Exceed its assets
Liquidity risk takes on a number of forms. Chính for a bank, it is the risk a large number of depositors mà Investors unfortunately withdraw and ask for their savings - it is, the bank's Funding - at once, Leaving the bank short of Funds. Such Situations can force banks to sell off assets - an unfavourably Most likely at low price - would not otherwise choose khi chúng to. If a bank defaults, being thể repay depositors and other Creditors to what chúng Owed vì fall as những debts, it is 'cash-flow insolvent'. This is on the right-hand Illustrated column of the figure on the first page of this article. A bank 'run' - where many depositors to withdraw seek Funds From The bank - is an extreme example of Liquidity risk. The failure of a bank can be a source of instability Financial vì the Economic Disruption to critical services. Moreover, the failure of one bank can have spillover effects if it Causes Investors to depositors and other banks will fail giả sử mà as well. This could be vì other banks are to hold similar portfolios Considered of loans - it might, to be repaid am also fail - or vì chúng Lent to the bank to might have mà has failed.