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medium-sized businesses and further simplification of the refinancing of banks, loans to SMEs;
- further development of mechanism to guarantee loans to SMEs through the unification of the activities of the guarantee funds, increasing the aggregate limit of guarantees loans to SMEs;
- increase in the money supply in certain segments of the money market, in which the possibility of commercial banks the most limited, for example, funding of long-term debt [5].
Of course, there can be no consensus on the issue of formation of priority of financial support mechanisms for lending to small and medium-sized businesses, as there are still a lot of unresolved contradictions. However, in the banking system there is a positive trend of lending of small and medium-sized businesses. In our view, it will be impossible to change the situation with ensuring access to credit for small and medium-sized businesses without active involvement of the state in this process, using both direct and indirect instruments of financial regulation.
Literature:
1. Federal Law of 24.07.2007 № 209-FZ (ed. from 12.28.2013) "The development of small and medium-sized businesses in the Russian Federation".
2. Pargamanina E.A., Vasilenok V.L. Lending as a form of financial support to businesses. Scientific Journal ITMO. Series: Economy and Environmental Management. 2014. № 1. p. 59.
3. Korotaeva N.V., Cheglova E.A. Measures of state support of small and medium-sized businesses. Socio-economic phenomena and processes. 2014. № 1 (059). p. 28-32.
4. Kravtsov N.I. Management of financing for small businesses through bank loans in a crisis of liquidity in the Russia.- Finance and credit.- №7.- p. 41-46.
5. Kaltyrin A., Antonchikov S.N. Are they able Russian banks to build an effective business model of service to small and medium-sized businesses? [Electronic resource] // NISIPP / 2014. URL: http://www.nisse.ru/work/experts/expert_61.html?mode=opinions (date of treatment 18.04.2015).
Lapenkov V. Y.
Master's student, International Finance Faculty Financial University under the Government of the Russian Federation
Moscow, Russia ANALYSIS OF BANK SECURITIES PORTFOLIOS Abstract: It's natural to think of banks as intermediaries that take in deposits and use them to make loans to businesses and individuals. But in fact, loans make up only 45 percent of the assets banking organizations. What's the rest? A large part is accounted by securities, such as Treasury and foreign government bonds, mortgage-backed securities (MBS), municipal and corporate bonds, and equities. In this work, I take a tour of bank securities portfolios, and
also discuss reasons why securities represent such a significant part of banking firm balance sheets.
Keywords: FINANCE, BANKING, RESEARCH, Securities, AFS, HTM, TRADING, RISK, INVESTMENTS.
First, here are some definitions. From an accounting point of view, banks and other corporations classify securities they own into one of three categories:
Trading: Securities that are bought and held principally for the purpose of selling in the near term.
Held to maturity (HTM): Debt securities that the firm has the positive intent and ability to hold until maturity.
Available for sale (AFS): A catch-all for debt and equity securities not captured by either of the above definitions. These are securities that the bank may retain for long periods but that may also be sold.
The chart below shows a breakdown of bank debt and equity securities portfolios into these three categories. The size of each portfolio is scaled by the total assets of the commercial banking system.
As the chart shows, the prominence of securities in bank balance sheets isn't
a recent phenomenon - it has been a feature of the U.S. banking system for at least the last two decades. Also evident is an increase in debt and equity securities held for trading purposes in the period after the repeal of the Glass-Steagall Act in 1999. This upward trend has partially reversed since the financial crisis: trading securities declined from 9.1% of total assets in the second quarter of 2007 to 7.2% today. Before going further, let's step back to consider a few reasons why banking firms choose to own securities in addition to or instead of loans.
1. Banks may face an imbalance between their access to deposit finance or other low-cost funding and their profitable lending opportunities. This could be the result of geographic factors, shocks to credit demand or to deposits, or other factors. In such cases, funding-rich banks may choose to invest in securities that reflect lending by other banks or by nonbank lenders (e.g., mortgage-backed securities issued by another lender), or direct debt issuance by nonfinancial firms (e.g., corporate bonds).
2. Relatedly, a bank concerned about liquidity risk may be attracted to securities because of their liquidity; that is, they can be sold more easily and with lower price impact than loans, for which the secondary market is less active. Liquidity concerns may also be driven by regulation—going forward, the liquidity coverage ratio developed as part of the Basel III Capital Accord requires banks to hold enough high-quality liquid assets to meet their liquidity needs under a thirty-day liquidity stress scenario.
3. From a risk management point of view, holding securities may help the bank diversify or mitigate its risk exposures. Conversely, adjusting securities holdings can provide a straightforward way for banks to ramp up their level of risk in an effort to increase expected returns. For example, recent research argues that banks respond to expansionary monetary policy by lengthening the maturity of their securities portfolios, in an effort to boost yields.
4. Holding securities portfolios may help the banking firm perform other financial services. For example, broker-dealers maintain an inventory of securities to allow them to act as market makers, matching buyers and sellers in financial markets and providing liquidity to those markets.
5. In some cases, holding securities instead of loans may be partially or mainly motivated by regulatory arbitrage - helping the firm reduce its capital requirements or provide other types of regulatory relief, perhaps without substantially reducing the overall risk to the firm.
Bank holdings naturally reflect the relative size of different securities markets. For example, bank ownership of non-agency MBS (mortgage bonds issued by private financial institutions rather than the GSEs) increased significantly between 2000 and 2007, alongside the rapid growth in the overall non-agency market, particularly in subprime. Non-agency residential securitization has been low since the financial crisis; correspondingly, bank holdings have shrunk, as the loans underlying old non-agency MBS have defaulted or paid down.
Finally, a notable recent market trend is the shift in bank portfolios toward
HTM securities, which although still small, have more than doubled in size as a percentage of banking system assets over the past several years. What explains this trend? A key difference between HTM and AFS is the accounting treatment of gains and losses. As noted in a number of media reports (see one article here), gains and losses in the value of HTM securities that result from movements in market prices (e.g., interest rates) aren't recognized unless the asset is sold. For AFS securities, however, such shifts in value, while not affecting accounting income, do affect the measurement of regulatory capital adequacy for large banks under the Basel III framework (for so-called "advanced approaches" firms).
Correspondingly, increasing the fraction of securities classified as HTM has the capacity to reduce the volatility of regulatory capital ratios but will limit banks' ability to sell those securities in the future.
Literature:
1. Admati, Anat, and Martin Hellwig, 2013, "The Bankers' New Clothes: What's Wrong with Banking and What to do about it", Princeton University Press.
2. Berzins Janis, Liu C.H., Trzcinka Charles, 2011, "Asset management and investment banking", Journal of Financial Economics, 215-231
Lapenkov V. Y.
Master's student, International Finance Faculty Financial University under the Government of the Russian Federation
Moscow, Russia
BANK STABILITY ISSUES
Abstract: One of the major roles of banks and other financial intermediaries is to channel funds from savings into valuable projects. In doing so, banks engage in "liquidity and maturity transformation," since they finance long-term, illiquid projects while funding themselves with short-term, liquid liabilities. By performing this important role, banks expose themselves to the risk of runs: If depositors or other short-term creditors worry about their claims, they may withdraw funds en masse and cause the bank to fail.
Keywords: FINANCE, BANKING, RESEARCH, STABILITY.
The recent financial crisis once again highlighted the fragility associated with financial intermediaries performing the roles of maturity and liquidity transformation. This post draws upon our paper "Stability of Funding Models: An Analytical Framework" to illustrate the determinants of a financial intermediary's ability to survive stress events.
