My one and only full mark essay (on banks…)

Right, this may be a bit of a cheat…but since we’re doing a throwback on my previous poem 😛 why not let my essay join in the party!

So there is also a little story behind this. Throughout my freshman year, I probably got the lowest GPA amongst my comrades. Not only was Accounting and Finance my worst enemies; fellow classmates who had previously learnt these subjects only brought up the scoring curve even higher (or may be I’m just dumb, but let’s assume I’m not for the time being 😉 …just when I think my academic is going South by the end of Year 1, things start looking up in Year 2. And that’s when I start to do well in classes and received my dean’s list awards. So I guess the story here is very cliche but true. You don’t judge a fish by how well it rides a bike. Because fishes excel in swimming and forgetting things. That’s what a fish does best.

And here below, is the full mark essay that landed me my first A+ 🙂 I must say I did get a little help on understanding the whole banking system. However, the idea is indeed entirely original. That bank where my grandparents still keep those precious “heirlooms” (sort of), is where I roll down the stairs when I was 3. So here you go: 

When I was a kid, a “bank” to me is a financial institution and intermediary that provides time deposit, saving and lending services. I would think of the bank branches around the corner where my dad cash a cheque or withdraw money from ATMs; my grandparents also keep their wedding dowry in one of those banks’ vault. As I grew up, however, I start to realize a “bank” is just a general term and there are in fact many types and sizes of distinctly different banks. The type of banking services I had in mind is retail banking, provided by commercial banks.

Commercial banks profit from the difference in interest rates paid for deposits, and charged for loans. Deposits can be of foreign currencies and different time frame, loans can be in the form of mortgage or overdraft etc. To facilitate this mechanism, the bank needs to abide by a reserve requirement to ensure liquidity; hence prevent bank runs from happening. Apart from retail banking, business and private banking services are also offered. Business banking include assisting companies to fund their projects, collecting money from customers and paying suppliers and employees etc. Private banking is a more customized banking service catered for high net worth individuals including a dedicated banking manager, more favorable interest rates for mortgage, time deposit, and fee waiver for certain services.

As I entered university, my classmates start talking about their aspiration to work in a “bank”. What they often mean is an investment bank. Investment banks’ services are more geared towards the financial market such as the forex and bond market. On an individual level, investment bankers act as agents to trade on behalf of their clients. They trade stocks, commodities and other derivatives to make a gain in a certain time frame. Quite different from commercial banks, investment bankers mainly profit from commission. On a business level, investment banks assist companies’ IPO, raise capital by underwriting or issuing bonds and shares etc. They also assist in mergers and acquisitions. Therefore, another source of income for investment banks are the fees charged for these professional services.

In essence, all banks are built upon trust. We trust commercial banks to safeguard our money by lending to credible people; we trust investment bankers to act as responsible agents and trade in our best interests. Unfortunately, this is not always the case; moral hazards arise from irresponsible lending and trading that aim to maximize banks’ or bankers’ profit. In today’s financial world, most of the largest banks such as BNP Paribas, function both as a commercial and investment bank. These universal banks operate globally and are responsible for billions of assets. They are simply too big to fail. Due to the convoluted counterparty system, the mismanagement of risks in one division can impose threats to the global financial system. Thus, it is ever important that banks worldwide are well regulated. That way, my grandparents’ dowry will remain safe in the vault until I get married one day. (Hopefully.)

References:

Commercial Bank Definition & Example | InvestingAnswers. (n.d.). Investment Strategies, Education & News | InvestingAnswers. Retrieved September 16, 2012, from http://www.investinganswers.com/financial-dictionary/debt-bankruptcy/commercial-bank-2364

Investment Bank Definition & Example | InvestingAnswers. (n.d.). Investment Strategies, Education & News | InvestingAnswers. Retrieved September 16, 2012, from http://www.investinganswers.com/financial-dictionary/investing/investment-bank-598

Universal bank – Wikipedia, the free encyclopedia. (n.d.). Wikipedia, the free encyclopedia. Retrieved September 16, 2012, from http://en.wikipedia.org/wiki/Universal_bank

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