The investment portfolio of the bank: the nature and function

Investment Banking and Securities to perform many important functions in the internal bank management, namely, provide an additional, distinct from credit source of income is especially important for management and shareholders when the income figures provided by drop, could be sold to the bank to obtain the necessary funds or used as collateral when borrowing additional funds, ie a source of liquidity and are used to limit the amount of cash reserves, helping to reduce the tax liabilities of the bank by investing in securities that are exempt from taxation can compensate the high credit risk portfolio of bank loans to purchase high-yielding securities, provide geographic diversification because securities are often associated with other regions than the bank credit facilities, are used as collateral in obtaining credit from banks and central bank the flexibility of the banking portfolio, because securities, unlike loans, may be readily purchased or sold for the restructuring of the bank's assets depending on market conditions ; improve the financial performance of banks' balance sheets due to the high quality of most of the securities held by the bank. Thus, the functions of the investment portfolio are as follows: revenue stabilization of the bank, regardless of the phases of the business cycle, compensation for credit risk portfolio of bank loans, providing geographic diversification, liquidity support, reducing the tax burden, the use of portfolio as collateral, the bank's insurance against losses due to changes in interest rates; Flexibility of the banking portfolio, improve the financial performance of banks' balance sheets due to the quality of the securities. When building an investment portfolio should be guided by the following considerations: security investments (investments invulnerable to shocks in the securities market), the stability of revenue; liquidity of investments (the ability to quickly and without loss in value to turn into cash). Category: Management Operations Commercial Bank