StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Major Banking Processes - Assignment Example

Cite this document
Summary
The assignment "Major Banking Processes" focuses on the critical analysis of the major issues in the main banking processes. The financial practice of pooling various types of debts mainly contractual such as residential and commercial mortgages, credit card obligations, and auto loans…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97% of users find it useful
Major Banking Processes
Read Text Preview

Extract of sample "Major Banking Processes"

?Banking Securitization The financial practice of pooling various types of debts mainly contractual such as residential and commercial mortgages, credit card obligations and auto loans and selling the bonds to various investors is known as Securitization. Other descriptions are the processes of liquidifying assets through financial engineering in order to transform them into a security. Mortgage Backed Security (MBS) is an example of securitization as supported by Abuzz & Berliner (2007). This is an example of an asset backed security which is secured by a collection of mortgages. The procedure operates as follows: first of all, there is a regulated and authorized organization originating numerous mortgages. The mortgages are secured by claims against the various estates the mortgagors purchase. Afterwards, the individual mortgages are huddled together as a mortgage pool. The pool is held as the collateral for an MBS. The MBS can also be issued by a third-party financial institution for instance a large investment banking company or similar bank where the mortgages originated from. Aggregators can also issue mortgage backed securities. There are MBS whose main purpose and interests are guaranteed by a United States government entity or sponsored enterprise. The securities are known as agency MBS which do not expose an investor to credit risk. For a non-agency MBS, issuers normally employ various vehicles to enhance the credit of the security in order to obtain a targeted investment-grade rating. Investors within MBS are exposed to uncertainties about the future cash flow since the borrower has every right to repay the loan wholly or partial as long as it is before the maturity date. This is called prepayment risk which is a major factor in understanding MBS. When the MBS is being created, an issuer would choose to break the mortgage pool severally to different parts known as tranches. These tranches are structured in various forms depending on the choice of issuer. The tranches differ in relation to the priorities of payments received. These early payments must then be allocated to the tranches according to a schedule or priority. This allows the issuer to tailor a single MBS in case of risks and damages. The funds accumulated for example Pensions and hedges are used to invest in high credit mortgage securities and seek higher returns through investing in low credit ratings. A vital innovation in the financial markets has been the securitization of assets. Apparently, this would include mutual funds as securitized investments. Interestingly, securitized investments normally distinguish themselves by the fact that they change priorities of payments to the holders of the securities. The first type of securitized asset was the residential mortgage in 1969 and the first non-mortgage asset securitization were the lease received in 1985. Since then, credit cards, loans and bonds and several other types of debt instruments have been securitized. Considering the prepayment risk that an investor faces in the basic mortgage-backed instrument as well as the pass through security, there is a very high chance of enquiring huge losses. For instance when interests rate fall, homeowners usually begin prepaying their mortgages while leaving mortgage holders normally receive their principle payments earlier than scheduled. Consequently, the cash flow has to be invested in lower interest rate environments according to Chance (2008). As a result, the returns on mortgage pass-through are quite volatile shocking the many investors who were unaware that such a risk would occur. Nonetheless, the result is similar that a new security is created and backed up by the claims against the mortgagors’ property. However, this security can be sold to participants who are in the secondary mortgage market. The secondary mortgage market is very large hence providing a significant amount of liquidity to the mortgage groups. Competitive Strategy With the business environment continuously becoming more challenging and taking a global twist, companies see a greater need to develop and implement measures that are aimed at securing their operations in a sustainable way, against competition (Day and Gunther, 2004). Competitive strategy has a lot to do with the manner in which an organization competes in the market with other players offering similar products or services. The current dynamic markets and new technologies have given rise to the issue of sustainability of competitive advantage. There is pressure to improve productivity, quality and speed so as to measure up to competition while meting market demands. Due to this, managers have embraced tools such as TQM (Total Quality Management), benchmarking, Kaizen (continuous improvement) and reengineering according to Teicholz and Ikeda (1995). As a result, there have been dramatic operational results among various companies. However, these gains rarely translate to sustainable profitability. Slowly, these tools are being replaced by strategy. Efforts by managers to improve all fonts unfortunately have led them further away from competitive positions. Operational effectiveness is necessary to superior performance but not sufficient enough. This is due to the fact that its techniques are easy to imitate. Clearly, the essence of strategy is to choose a unique and valuable position that is rooted in systems of activities that are much more difficult to compete with. To become a market leader there must be practice of competitive leadership strategies as supported by Day and Gunther (2004). A market leader is a dominant force in its industry and has substantial shares in the market too. In order to become the industry leader, some of the strategies include the development and adoption of new business models as well as new products and services. Another strategy is being on the cutting edge of new technologies as well as innovative business processes. In addition, products must be differentiated well enough and finally, the organization must have the superior capacity to handle clients’ problems solving them accordingly. Strategy is increasingly dynamic in nature. The strength of a given strategy is not determined by the initial move but rather how smartly it addresses changes in the competitive environments. They include regulations, technologies and other sources. In many industries, the pace of change in the competitive environment has increased. Subsequently, so has the need for explicit recognition of this dynamism while formulating competitive strategies. References Abuzz J. and Berliner W., 2007, Mortgage-backed securities: products, structuring, and analytical technique. John Wiley and Sons. Chance D., 2008, Essays in derivatives: risk-transfer tools and topics made easy. John Wiley and Sons. Day G. and Gunther R., 2004, Wharton on Dynamic Competitive Strategy. On Wiley and Sons. Teicholz E. and Ikeda T., 1995, Facility management technology: lessons from the U.S. and Japan. John Wiley and Sons. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Banking Assignment Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.org/family-consumer-science/1405883-banking
(Banking Assignment Example | Topics and Well Written Essays - 1000 Words)
https://studentshare.org/family-consumer-science/1405883-banking.
“Banking Assignment Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/family-consumer-science/1405883-banking.
  • Cited: 0 times

CHECK THESE SAMPLES OF Major Banking Processes

Multivariate Analysis

The huge capacity of research in the field of modeling of the real world processes along with handling of several input and output variables is obvious.... A Study of Diversification in banking sector with special reference to Finance, by Yaseen Ahmed Meenai, IBA, Karachi, Pakistan.... Performance measurement by Data Envelopment Analysis (DEA): A study of banking sector in Pakistan by Sultan Jahanzaib, Bilal Muhammad, Zaheer Abbas.... The second research paper is also related to the banking sector in Pakistan....
12 Pages (3000 words) Essay

Replacing Core Banking for ADIB

The dissertation "Replacing Core banking for ADIB" offers the platform upon which parameters for the same may be set in order to chiefly understand the scope for combining Sharia as well as the context of globalization within which the bank's expansion policy exists.... The core banking system of any bank is at the very epicenter of its activities and through this dissertation, the researcher has tried to pose relevant questions that will help in taking a critical stand and perspective on the SOA process as developed by Microsoft so as to find ways to improvise the same....
52 Pages (13000 words) Dissertation

Advantage and diadvantage of Internet Banking Services and driving forces of its prosperity

The banking sector is no different and this sector in fact has developed to great extents where individuals can use the online banking services to virtually make any transactions.... With the ent of the internet banking, there have been major changes and improvements in the overall banking experience and now customers can complete all transactions from the comfort of their homes (Cronin, 1997).... nternet banking has grown with times and in the current times; this is regarded to be safe, secure and very beneficial to all....
4 Pages (1000 words) Essay

Internet Banking Scenario in Pakistan

The obvious outcome was the greater technological progress in the banking sector where computers replaced manually kept ledgers and journals and introduced the concept of 'creativity' in the banking processes and customer services became the utmost objective.... This work called "Internet banking Scenario in Pakistan" focuses on the internet banking scenario in Pakistan and the factors for customers' satisfaction.... The author outlines the role of internet technology, customer perceptions, and satisfaction levels, changing banking style from conventional to e-banking....
13 Pages (3250 words) Research Proposal

Management of Information and Technology In Banking - Lloyds Bank

Technological changes that relate to telecommunications, as well as data processing, have encouraged financial innovations that have changed bank products and their services through production processes.... The paper "Management of Information and Technology In banking - Lloyds Bank" is a perfect example of a finance and accounting case study.... Changes in Information and Communication Technologies have recently turned out to be central to various developments within the banking as well as financial services industries....
33 Pages (8250 words) Case Study

Business of Banking and Regulatory Regime

From the paper "Business of Banking and Regulatory Regime" it is clear that generally, the business of banking is the process of receiving money, paying in cheques, paying the agents, and banks paying clients through payment processes such as ATMs to name a few.... Australia has foreign banks focussed on commercial banking and other capital market practices and sometimes takes part in the retail banking market.... he banking institutions face competition from non-bank sectors such as finance companies, credit unions, and building societies that provide financial assistance to Australians (Tyree and Weaver, 2006)....
6 Pages (1500 words) Essay

The Islamic Banking and Finance

The paper "The Islamic banking and Finance" is a decent example of a Finance & Accounting case study.... The paper "The Islamic banking and Finance" is a decent example of a Finance & Accounting case study.... The paper "The Islamic banking and Finance" is a decent example of a Finance & Accounting case study.... The exchange contracts have diverse essence in the Islamic financial institutions, this exchange based contract is classified into two major categories, this is the sales-based contract and the lease based contract....
8 Pages (2000 words) Case Study

Comparison of Indian and American Banking System

The paper " Comparison of Indian and American banking System" is a perfect example of a finance and accounting case study.... This paper explains the relevant foundation of the American banking system and regulations that guided it, starting from the passing of legislation such as the Glass-Steagall Act and the Mcfadeen Act, several decades ago.... The paper " Comparison of Indian and American banking System" is a perfect example of a finance and accounting case study....
9 Pages (2250 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us