Help Me With Sign Massachusetts Banking IOU

Help me with industry sign banking massachusetts iou

welcome to the first video in what will be a short series about what the city does who the key players are and why they exist and in this first video I want to take on the role of banks so here comes a snapshot summary of what banks do and where they fit into the bigger picture now the city itself and banks are a big part of it basically does one simple job it brings together people with money and people who need money so in a nutshell it links investors that's people prepared to put money in in the hope of getting a return which I'll call I now there are a few rules of thumb there but one of the key ones is the more risk you're prepared to take the greater that return will be and so on and on the other side you've got people who need capital so you've got borrowers looking to take money out if you like and pay a price for doing so alright on the left-hand side who might those investors be where they can be loosely divided into two groups there are the institutional investors for example pension funds looking to make a return on the money that's given to them by savers and there are retail investors for example like you and me looking to make a return on our bank accounts or from shares bonds and so on on the right hand side big borrowers include the government issuing IOUs to fund the gap between tax receipts and all things they have to pay for defense education and so on and corporate borrowers also issuing IOUs or issuing shares but essentially the city brings those two parties together and that's worth remembering no matter how complicated the institution or the product you're looking at that basic purpose it's what it's all about and of course the people in the middle are doing it to make a profit so they're your basics let's take a look at banks now banks can be loosely split into two types retail banks and investment banks or leave central banks to another video so on the Left retail banking is the age-old practice spin-around centuries now of accepting money from say and offering as most of you know a fairly low return lending that money out again at a different maturity typically to people to borrow it that could include people like you and me looking for a mortgage could include companies looking for a loan okay but the basic principle is quite simple banks aim to pay less on the deposit side the equation then they generate from lending those funds out and retail banks tend to be large because it's a kind of bulk business if you like so the likes of HSBC and Wells Fargo pretty large businesses focused heavily on the retail side of the market so far relatively straightforward all right on the right-hand side things get a little bit hairier we've got the investment banking side and of course it's not true to say anymore that you've got definite distinctions we've retail banks and investment banks there are some pure investment banks around like goldman sachs for example there are some mainly retail banks around but there are quite a few that kind of do a mixture of the two Barclays for example which has both a retail and investment banking on now it's investment banking arm that expands quickly in the good times contracts rapidly in the bad times so what are they up to high-risk high-return stuff and let's just give you a flavor for investment banks do on the right hand side and the rest of this presentation just by looking at four or five key activities not a bull list if you walk around a bank and look at the signs above people's desks you might see more lists and you might see different names it gives you a flavor now the first two I can take off relatively quickly prop or proprietary trading that is gambling with the bank so money essentially it's given a rather grand title but that is traders at the bank taking risk by investing the bank's money in bonds commodities currencies shares whatever happens to be in the hope of generating a return prop trading desks as they're sometimes known new issues more specifically about IPOs coming up in a future video but that is the process of helping advising a company that's coming to the market for the first time looking to raise capital they need advice on the timing of a new issue of shares the price they need help with the regulatory issues keeping the stock exchange happy and they need help contacting investors who might buy the shares and so on so new issues is a very big part of what some banks do then we've got some more jargon we've got market making corporate finance brackets mergers and acquisitions there's a good example of what corporate fire is all about and asset management solutions as I'd rather grandly called it I'll just give you an illustration of the one solution so solving problems for clients both institutional in some cases retail okay so let's take those last three market making very common piece of jargon what a market makers do well quick story here you've got a client on the Left REIT our institutional looking to buy some shares they normally contact a broker more about brokers in a future video but contact a broker and that broker essentially has two ways of getting a deal done in shares on behalf of their client they go through their Commission in the process of doing so number one is a purely electronic trade so a broker might look at their screen say great well I need to do is pump this order to buy shares into the market and it will be automatically and anonymously matched with someone looking to sell shares add a competitive price and exchanges like the London Stock Exchange specialize in all running those electronic order books but people all over the market can use to buy and sell shares but it works best for the most liquid popular shares for slightly less liquid slightly less popular shares or weathers kind of awkward deal instruction from the client broken back onto the market maker the market makers are a bit like if you want to see it this way second-hand car dealers they thank me for making that comparison but essentially what does the second-hand car dealer do holds a stock of cars has a buy price and a sell price alright the more dealers there are in your area essentially the better deal you can probably get as a car buyer and you'd approach them looking to do a deal in a particular car that you want while a broker can approach a market maker in shares they run books of stock if the share is relatively difficult to trade they'll be a big gap between the price at which they buy and which they sell as market makers if there are more market makers it's more liquid that gap will narrow but slightly awkward deals in times less liquid chairs can be routed through a market maker a market makers also by the way helped to create hence the name the market that allows brokers to do the other thing which is get an order done sort of electronically without having to pick up the phone necessarily so there it is electronic execution and market making now M&A what's that all about I said corporate finance well here's one example of what that could mean for an investment bank mergers and acquisitions let's take a quick example you've got shareholders in company a right on the left hand side here and shareholders in what's going to be the target company company be out on the right hand side and basically Company A's directors decide they want to make a bid for Company B cash is a good thing to bid in return for the shares of Company B all right and if they get enough of them they'll take control of the company and that's a takeover where does an investment bank fit in you could have an investment bank basically advising on the left hand side and potentially advising on the right hand side and the sorts of things they make a fee for doing they often take a percentage of the amount paid for example outs a fee is advising company AG and all the timing the pricing any regulatory hurdles of map to be crossed company B might want advice on defense tactics and so on and so forth so there are plenty of ways for investment banks potentially to make a fee out of things like mergers and acquisitions sometimes under the umbrella of corporate finance the men just to give you a flavor you've got what I call broadly speaking asset management now asset management covers a wide range potentially of activities but often it's finding solutions for clients institution in domains sometimes retail what sort of solutions well this sort of thing a client says I want a product that guarantees my money back after 5 years and offers 3/4 the return on the footsie 100 index in the mean time so it's like a win-win isn't it the client wants their money back in five years time it puts these dives and they want their money back plus three quarters of the game they put see if it rises how's a bank and organized that solution don't worry about the technical stuff here but a bank might say well supposing you come to me there's a big climb with 50,000 pounds maybe what I can do is buy on your behalf a certain kind of IOU our bond and a derivative called a call option now before you switch off the video think it's all jargon not somewhat worried about what these things actually are it's more the principle this could be a deep discounted bond so essentially the bank that's 45,000 pounds into the bond knowing it will mature in five years time it's a 50 thousand so there's the money back for the client should the first collapse the call option essentially gives the bank the ability to cash in if the footsy rises over that five-year period to the extent they can pay the client the seventy five percent but the footsies return okay and keep a bit back for themselves if you're thinking has the client lose well in the meantime the clients not earning an interest on their capital and they're not receiving dividends from the underlying index so on and so forth plus they're probably paying a fee for the product but there it is so called structured product and I've used a very fast and loose example there are other ways that product could impractical a quick tour of the role of banks they're a crucial part of the financial system and remember no matter how complex the product no matter how complex the bank at the end of the day they exist to do one thing bring together people who've got money with people who want money and make as much money out of that process as they can you