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Barclays And Deutsche Bank: A Tale Of Two Investment Banks

Date: Oct 24th, 2018

Media: Forbes

Link: https://www.forbes.com/sites/francescoppola/2018/10/24/a-tale-of-two-investment-banks/#70a819b15f6a

What happened?

Barclays and Deutsche Bank are leading European banks by total assets (in billion €) and they have released their third-quarter results.

Although at first glance, these results look good, as their profits increased, poor performance in their investment banking divisions is bad news for both banks.

Whom and where it affects?

It affects both banks in Europe, and therefore, their investors, shareholders or clients.

What sort of public or private institutions are involved?

Barclays is a British multinational investment bank and financial services company headquartered in London; and Deutsche Bank is a German investment bank and financial services company headquartered in Frankfurt, Germany.

Why is it important for Banking and Finance?

As these banks are the most important banks of Europe, their bankruptcy or their financial problems, can cause a financial instability in the European economy or even systemic risk.

What do you think will be the consequences in the foreseeable future?

There is a possibility that Deutsche Bank merges with Commerzbank (also German bank). Bolting the two “ailing German giants” together might perhaps create a bank large enough to compete with the Americans, though it’s a risky strategy – mergers of this kind can have the unfortunate effect of amplifying the weaknesses of both banks. In case this happened, Barclays could suffer too much pressure and it wouldn’t resist to compete succesfully once again with the American giants.

Key words:

Investment bank, Shareholders, Investors, Europe, Deutsche Bank, Barclays, Results/performance.

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Bank Money Creation, Reserve Requirement and Money Multiplier

Banks have the obligation to keep in reserve only a part of their customers’ deposits, in a percentage that depends on the requirements of the Central Bank (the reserve requirement, 2% in Spain). When banks lend the part of the deposits that are not in reserves, the money can return to the banking system in the form of a new deposit. That repetition of loans can happen several times. Banks «multiply» money by creating bank money.
The reserve requirement is a central bank regulation that establishes the minimum amount of reserves that a commercial bank must have.
The money multiplier is the process that allows banks to multiply the bank money by starting from an initial amount of money. This is because banks are only obliged to keep in their reserves a minimum level of money (The Cash Reserve Ratio, CRR)
With this process of creation of bank money, the money supply of a country is
increased. In most modern economies most of the money supply is in the form of bank money and not legal money (notes and coins).

Example: ‘‘The standard story about how banks create money, and how reserves work, is the ‘Money Multiplier Model’. Money creation starts with the government injecting ‘fiat money’ into the economy – say by giving a welfare recipient $100 in cash. That recipient then deposits the cash in a bank, which hangs on to a government-mandated fraction of it (the ‘Reserve Requirement’) – say 10 per cent or $10 – and lends out the rest to a borrower. The borrower then deposits that $90 in another bank, which does the same thing – hangs onto 10 per cent of the $90 or $9, and lends out another $81 to another borrower.’’

Links:

News about the money multiplier

Videos:

Cash Reserve Ratio (CRR)

The money multiplier

Monetary policy, money creation in a fractional reserve banking system.

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Europe should be wary of stealing London’s financial sector.

Excessively large financial sectors damage productivity and growth.

Date: 18th October 2018

Media: The Guardian

Link: https://www.theguardian.com/business/2018/oct/18/eu-members-should-be-wary-of-stealing-londons-super-sized-financial-sector

What happened?

Due to the negotiations about Brexit in United Kingdom, other European countries are using the deep uncertainty about the future financial regulation of the continent’s financial markets to include business and activities.

Whom and where it affects?

This issue affects the rest of the business and countries in the European Union

What sort of public or private institutions are involved?

It involves all institutions, mainly financial and bank sector, the Brexit pretends a financial rethinking about a major financial centre is, of course, unambiguously good for Porsche dealerships, upmarket champagne bars and table dancing clubs.

Why is it important for Banking and Finance?

Is very important because the relationship between the rest of Europe banks and United Kingdom banks. This banks had lost the capitalization also the interest rates are at historic minimums, apart of the financial crisis because of the brexit, the GDP also suffers a contraction. There was a drop in housing prices, specifically 33%. In addition to all, United Kingdom has  a void on the part of the rest of countries of the European Union, costing them thus to obtain financing outside of UK.

What do you think will be the consequences in the foreseeable future?

The United Kingdom will participate in a real-world experiment that tests the economy. It will produce the substantial relocation of financial activity unless it realice a major advance in the Brexit negotiations. If it happen , the BIS economists won’t make a mistake.

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Hedge Funds

Hedge funds are collective investment institutions ruled by a free investment regime. In the CII many participants provide funds and the Hedge fund is in charge of their management, with the main objective of obtaining the highest profitability through the investment. In addition, the “free investment” characteristic distinguishes them from the rest of the investment funds in having a higher level of freedom to manage their funds, normally investing in more risky assets. To assume a higher risk enables them to obtain a higher profitability, but, on the other hand, the opposite situation may also happen, higher losses. They use different investment strategies: short-term operations, long-term operations, leverage, trading, arbitrage, complex statistical models…

The origin of the last financial economic crisis originated in the United States in 2007 began with the fall of the Hedge fund Bear Stearns.

In Spain there are two types of Hedge Funds, called “Free Investment Funds” or “Free Investment Society”. The National Securities Market Commission (CNMV) is the institution that establishes their regulation in Spain.

Example: “Many of the hedge funds were set up over the last year to invest exclusively in virtual currencies. The research firm Autonomous Next has said the number of such hedge funds has risen from around 30 to nearly 130 this year alone.”

Source: https://www.nytimes.com/2017/11/06/technology/bitcoin-hedge-funds.html

Video:  https://www.youtube.com/watch?v=5ItfdOC1B9Q

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MoneeMint to become Europe’s first ethical digital bank

Date: 9th of April 2018

Media: Banking Technology Magazine

Link: https://www.bankingtech.com/2018/09/moneemint-to-become-europes-first-ethical-digital-bank/ 

What happened?

    MoneeMint will create the first ethical digital bank in Europe. Initially, it will offer prepaid services and products. MoneeMint is the new image of Ummah Finance. It was founded by Waqar and Martin Luther Maramba. 

Whom and where it affects?

   The app is aimed at millennials in the United Kingdom and the rest of Europe.

What sort of public or private institutions are involved?

The only institution is Ummah Finance (their capital is private), founded in 2016, based in London. This company has changed its name to MoneeMint. 

Why is it important for Banking and Finance?

It is important because it will mean an innovative improvement in banking services, due to which it will become the first Islamic bank through mobile phones based in the United Kingdom. Their ambition is transform the way Muslims in the UK Bank.

What do you think will be the consequences in the foreseeable future? 

The consequences in the future is that if the app is profitable then a lot of similar institutions will begin to offer the same services. This innovative service will allow them to approach the level of traditional banking, improving aspects of ethical banking. MoneeMint is creating new strategies to adapt to changes. In this way, the ethical bank will be able to offer different products.

Key words: banking, millennials, ethical digital bank, fintech, innovation, prepaid, Islamic bank.

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Ethical banking to debate

We share our debate «Ethical Banking vs Traditional Banking», where we were organized in different groups by roles (Ethical banking -in Spain, in Europe and worldwide-, Armed banking, Rural Saving Banks and Traditional banking). We had 3 moderators and also 3 special guests as jury, to whom we also take the opportunity to thank.

The activity was developed in this room, where all of we could see each other. We really had an interesting discussion after having shortly developed our  arguments one by one, under our own role.