Bank Magagement

2 Pages 563 Words

The goal for using the computer-generated model is to predict with some kind of certainty whether the bank your managing is going to succeed. The model calculates the different levels and sources of income along with the expenditures for a given bank, with taking into consideration the market and its interest rates. By adjusting the different levels of inputs and outputs, you try to see through speculation where and how to allocate your funds assuming you have a certain number of deposits, to make your bank successful.
When a bank manager tries to model a hypothetical bank they must first take into consideration the history of the market. By viewing all the financial aspects from the following year such as the term structure of interest rate, interest rate margins, the GDP, inflation, and the federal policy they can get an idea of where the economy will be heading. The term structure of interest rates shows the association between interest rates on bonds of different maturities. If the term structure graph or the yield curve is inverted or flat it is a sign that the economy will be slowing down or heading into a recession. When the fed announces a decrease in interest rates it usually shows a slow down in the economy or recession. This causes the credit spreads to widen, but if the fed announces an increase the spreads tend to compress, which indicates a lower level of default risk, and an economic recovery.
Understanding and foreseeing where the economy is heading is very important. Once they have realized where the economy will head whether good or bad, they must then take the necessary steps to ensure that the bank will succeed to its greatest potential. If the future economy was seen to be heading towards a recession or a slow down, then the managers would prefer to become more liquid. Purchasing treasury securities will enhance their amount of liquidity, but the amount of treasuries purchased greatly depends on the amount of r...