The Assignment is attached below.
Microsoft Word - MidSemester.docx AFIN8003 MID SEMESTER ASSIGNMENT Instructions: Write a 1500-word (+/- 10%) report in your own words, answering the Question below, along with footnotes (see below). You should use a few appropriate section headings. Include a (brief) Introduction and Conclusion. The reference below is just a sample for you where you can find relevant information to the topic. You are free to have more reference. Make sure you cite your reference briefly in brackets during the text of your analysis using simply the author/journal/date (eg Smith, Investor magazine, April 2020). Provide a full list of references used at the end of your paper. Footnotes must be numbered and displayed page-by-page as they occur (not in a single list at the end of your essay). Footnotes and bibliography are additional to the core 1500 word requirement. Your assignment must be typed and submitted in PDF online via iLearn, where it will be checked by Turnitin for similarity. Plagiarism may result in penalty deductions or failure of the assessment. Allow time to format, check, and upload your report before the deadline. The report is due Monday 26 April 17:00 (Sydney time). Late submissions are subject to penalty, i.e., deduction of 10% of the total available marks made from the total awarded mark for each 24-hour period or part thereof that submission is late (for example, 25 hours late in submission -20% penalty). This penalty does not apply for cases in which an application for special consideration is made and approved. Main Question: COVID-19 crisis and banks (25 marks) How is COVID-19 crisis affecting banks and bank regulation in advanced industrial countries (including Australia)? References: https://www2.deloitte.com/global/en/pages/about-deloitte/articles/covid-19/covid-19-s-impact-on-banking---capital- market-institutions-.html https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/fitch-%20downgrades- australia-s-4-biggest-banks-on-covid-19-impact-57936867 https://thewest.com.au/business/economy/global-financial-crisis-shake-up-of-banks-will-get-us-through-covid-19- says-reserve-bank-of-australia-ng-b881515175z https://www.smh.com.au/business/banking-and-finance/new-normal-life-for-australia-s-banks-after-the-pandemic- won-t-be-pleasant-20200505-p54px3.html https://www.abc.net.au/news/2020-03-31/are-australian-banks-safe-amid-the-shock-of- coronavirus/12101830 https://www.rba.gov.au/speeches/2020/sp-so-2020-12-15.html https://www.bcg.com/en-au/publications/2020/five-strategic-priorities-for-australian-banks-during-pandemic https://www.itnews.com.au/news/banks-sacrificed-cdr-efforts-to-prevent-covid-19-cyber-threats-547396 https://www.rba.gov.au/speeches/2020/sp-gov-2020-03-19.html https://www.theguardian.com/business/2020/mar/20/bank-of-england-cancels-stress-tests-for-uk-biggest-lenders- coronavirus https://www.cnbc.com/2020/04/27/deutsche-bank-warns-on-coronavirus-impact-as-its-profit-falls-from-a-year- ago.html https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200312~43351ac3ac.en.html https://www.bankofcanada.ca/2020/05/bridge-recovery-banks-covid-19-pandemic-response/ https://www.brookings.edu/research/fed-response-to-covid19/ https://edition.cnn.com/2020/04/17/business/bank-earnings-defaults-recession/index.html https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200401a.htm https://www.reuters.com/article/us-health-coronavirus-banks-bis-idUSKCN21X1B6 https://voxeu.org/article/stress-tests-banks-liquidity-insurers-time-covid https://www.bis.org/publ/bisbull11.htm https://www.bis.org/fsi/fsibriefs2.htm https://www.bis.org/press/p200403.htm https://www.dw.com/en/coronavirus-shock-vs-global-financial-crisis-the-worse-economic- disaster/a-52802211 https://www.investmentweek.co.uk/opinion/4012753/coronavirus-crisis-1918-2008 https://www.morgans.com.au/Blog/2020/March/Equity-Strategy-Why-COVID-19-isnt-a-GFC Bonus points for making connections with lectures 1-6 (5 marks) 5 bonus marks are available – during the course of your answer to the Main Question - for insightfully identifying connections to concepts/measures/issues in AFIN8003 lectures weeks 1-6. Cite the location in lectures (eg. ’week 4, slide 7’). Use footnotes ONLY to establish these connections between your assignment and concepts from AFIN8003 lectures. These footnotes are additional to the 1500-word essay length. Be sure to display footnotes at the foot of the essay page where they are referenced (not as a single list at the end of the report). TOTAL MARKS AVAILABLE: 25+5 DUE BY: 5pm (17:00 Sydney time) Monday, 26 April 2021 Microsoft Word - AFIN8003 Marking Guide.docx AFIN8003 Marking Guide (Mid-Semester) Criteria Very Weak (1) Weak (2) Adequate (3) Good (4) Excellent (5) Relevance (5) Failure to understand the question, extensive irrelevance Failure to address important aspects of the question Adequate answer to the question, covers main aspects Thorough answer covering most aspects of the question Comprehensive and effective answer to the question Knowledge and Understanding (5) Major errors, little knowledge or reading Limited knowledge with serious errors or omissions Adequate knowledge and understanding, errors balanced by sound work Conceptually sound, wide- ranging knowledge and understanding Knowledge based on independent reading and high-level synthesis Critical, Analytical, and Integrative Thinking (5) No evidence of critical or analytical abilities Little evidence of critical or analytical abilities Sound argument with evidence of analysis and reasoning, more description than analysis Flair and originality of thought, effective criticism of other arguments Penetrating analysis, persuasive and original criticism of others Evidence of the Use of Appropriate Materials (5) Very little evidence of having read relevant material Little use of evidence, limited reading, references of an inadequate standard Some use of evidence, fair amount of reading, overreliance on one or two authorities Good use of evidence, wide reading, generally well digested Excellent use and evaluation of evidence Structure and Presentation (5) Many faults in logic and structure of report, ideas expressed incoherently Weak structure and argument, poor style and presentation Generally coherent structure, generally clear writing and acceptable style Well organised structure, clear writing and accurate English style Excellent structure, every paragraph counts, English style shows flair and eloquence 22 February 2021 AFIN8003 BANKING AND FINANCIAL INTERMEDIATION Note to user: Replace this image with your own. § Right click on this Placeholder box § Replace image § Select image and click ‘Resize image to fit in placeholder’) Week1: Introduction to Financial Intermediation and Banks Outline • Why are financial institutions special? • Introduction • Financial institutions’ specialness • The financial services industry: depository institutions • Banks • Credit unions and building societies • The regulation of Australian DIs • Other financial institutions • Life insurance • General insurance • Superannuation funds • Managed funds and unit trusts • Finance companies • Securitisation vehicles 2 Financial Institutions’ Specialness • Without financial institutions: ― excess savings could only: § be held as cash § or invested in corporate securities. ― the flow of funds is likely to be low. ― little or no monitoring would occur. ― risk of investments would increase. • Households might find direct investments in corporate securities unattractive because of: ― monitoring costs ― liquidity costs ― price risk. 3 Fan Fan Fan Fan Fan Fan Fan Fan Fan Financial Institutions’ Specialness • Financial institutions stand between households and the corporate sector. • Financial institutions fulfill two major functions: ― brokerage function: § economies of scale ― intermediation (asset-transformation) function: § primary securities § secondary securities • Financial institutions are better able to resolve the costs facing an individual making a direct investment. 4 Fan Fan Fan Fan Fan Fan Fan Fan Fan Fan Information Costs • Household savers must monitor the actions of firms in a timely and complete fashion after purchasing securities. • Failure to monitor exposes investors to agency costs. ― Agency costs: costs relating to the risk that firm owners and managers use savers' funds in a way that is not in the best interest of the savers ― Principal (saver) – Agent (borrower) problem • Agglomeration of funds resolves the following problems: ― Delegated monitor: greater incentive for information collection and monitoring activities ― Information producer: replaces the need for inflexible, hard to enforce, loan covenant. • FIs reduce the degree of information imperfection and asymmetry between the ultimate suppliers and users of funds in the economy. 5 Fan Fan Fan Fan Fan Fan Fan Fan Fan Fan Liquidity and Price Risk • Financial institutions provide secondary claims to household savers: high liquidity. • Ability to diversify some of existing portfolio risk. • FIs can offer highly liquid, low risk product, while investing in illiquid, risky loans. • Diversification benefits available as long as the intermediary is sufficiently large to gain from diversification. • Less diversified institutions carry: ― high default risk ― more highly illiquid claims. 6 Fan Fan 7 Fan Fan Fan Fan Fan Fan Fan Specialness and Regulation Problems and risks if services are not provided • Negative externalities – affecting firms and households when something goes wrong in the FI sector of the economy Problems and risks if services are not provided • Net regulatory burden 8 Fan Fan Specialness and Regulation Regulation attempts to decrease these risks Major types of regulation seeking to enhance the net social welfare benefits of institutions' services: – safety and soundness regulation – monetary policy regulation – credit allocation regulation – consumer protection regulation – investor protection regulation – entry and chartering regulation 9 Fan Fan Fan Fan Banks • Banks are the largest depository institutions in terms of size. • Major difference between banks and credit unions/savings institutions: banks have more varied assets and liabilities. • Differences in operating characteristics and profitability across size classes—for instance, with regards to the size of the commercial loan portfolio. 10 Fan Fan Banks in Australia • Four major banks Westpac, CBA, NAB, and ANZ ― national focus ― offer complete corporate and retail banking services in Australia, NZ and Papua New Guinea ― they also operate in Asia, the US and the UK ― focus on lending (around 70 per cent). • Regional banks 20 regional banks in Australia ― regional focus with operations across state borders ― large proportion of assets invested in residential housing loans due to their origins as building societies ― focus on lending 11 Fan Fan Fan Fan 12 Fan Fan Fan Fan Fan Fan Fan Fan Balance Sheet and Trends: Assets • Banks account for more than 97% of all depository institutions assets in Australia. • Shift in bank lending from business loans to residential mortgages • Increase in the scale and reach of international operations 13 Fan Fan Balance Sheet and Trends: Liabilities 14 Fan Off-Balance-Sheet (OBS) Activities • OBS assets An item that moves onto the asset side of the balance sheet when a contingent even occurs • OBS liability An item that moves onto the liability side of the balance sheet when a contingent event occurs • Major types of OBS activities used by Australian banks include: • Direct credit substitutes • Trade- and performance-related OBS activities • Interest rate derivative contracts: futures, forwards, swaps and options • Foreign exchange derivatives contracts: futures, forwards, swaps and options 15 Credit Unions and Building Societies • Credit Unions Mutual cooperative organisations that provide deposit facilities, personal and housing loans and payments services to their members, who are usually linked by way of some common bond • Primarily provide deposit facilities, personal and housing