RETAIL BANKING MOST IMPORTANT NOTES | MORTGAGE-BACKED SECURITIES | SECURITIZATION | FREE YOUTUBE CLASSES 2022
CAIIB EXAM (Certified Associate of Indian Institute of Bankers) is held by IIBF (Indian Institute of Banking and Finance) twice yearly. CAIIB EXAM 2022 is one of the most critical exams held to separate the best of all the candidates so that the Banking and finance of India has the best possible future ahead. Individuals already a member of IIBF in risk management, Treasury Management, Credit Management, International Banking, Balance Sheet Management, and economic analysis can benefit from the CAIIB Program, which will provide advanced knowledge necessary for improved decision-making. Any banker who has completed the JAIIB (Junior Associate of Indian Institute of Bankers) is eligible to join CAIIB (Certified Associate of Indian Institute of Bankers). The most significant advantage of passing this exam is that CAIIB-certified bankers are eligible for additional scale increments. CAIIB exams include two compulsory papers named, Advanced Bank Management and Bank Financial Management papers and one elective paper. One of the elective subjects is retail banking and now we would like to discuss that.
Retail banking is the banking that takes place between you and your bank. Retail banking encompasses all banking services provided by your bank, including personal accounts, savings accounts, loans, and even online banking. Retail banking refers to banking services offered to the bank’s retail customers, who include the general public rather than giant or international corporations. Even when you use the internet to access banking services, you are interacting with your bank on some level, making it a form of retail banking. Debit cards, credit cards, internet withdrawals, and deposits, and various other services provided by retail banking help you fulfill your day-to-day demands.
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Small banks, giant banks, and internet banks are the three categories of retail banks that are explained further.
- Small banks operate on a small scale and accept modest deposits. Their market share is far lower than that of the big banks. They have many locations and offer nearly all of the services that a large bank can.
- Large banks are well-known financial institutions that operate in major cities. Many retail consumers choose these banks because they have established a solid reputation.
- Online banks do not have physical locations and exclusively conduct business online.
After going over the Retail banking we would like to move further with the mortgage-based securities.
Mortgage-backed security (MBS) is a bond-like instrument composed of a group of house loans purchased from the banks that originated them. MBS investors receive payments regularly, similar to bond coupon payments. Mortgage-backed securities (MBS) are asset-backed securities created solely by pooling mortgages. When an investor purchases a mortgage-backed asset, they effectively lend money to home buyers. A broker can buy and sell MBSs. The minimum investment varies according to the issuer.
A mortgage-backed asset is only as safe as the mortgages that back it up, as the subprime mortgage debacle of 2007-2008 demonstrated. Mortgage-related security (MBS) is sometimes known as a mortgage pass-through. The mortgage-backed securities effectively transform the bank into a mediator between the homebuyer and the investment community. A bank can offer its customers mortgages and then sell them at a discount to be included in an MBS. The bank registers the sale as a profit on its balance sheet and thus suffers no losses if the homebuyer fails later.
As long as everyone does what they’re meant to do, this procedure works for everyone. The bank follows acceptable norms for awarding mortgages, the homeowner pays on time, and the credit rating organisations that examine MBS conduct due diligence. An MBS must be issued by a government-sponsored enterprise (GSE) or a private financial company to be offered on the market today. The loans had to come from a licensed and regulated financial institution. And the MBS had to have achieved one of the top two credit ratings from a reputable credit rating organisation.
Read Also: SERVICE STANDARDS FOR RETAIL BANKING
Pass-throughs and collateralized mortgage obligations are the two most popular types of MBSs (CMO).
- Pass-throughs are trusts that collect and distribute mortgage payments to investors. They are usually claimed to be five, fifteen, or thirty years old. Depending on the principal payments on the mortgages that make up the pass-through, the past-life through may be shorter than their stated maturity.
- CMOs (collateralized mortgage obligations) comprise several pools of securities called slices or tranches. Credit ratings are assigned to the tranches, and the rates returned to investors are based on those ratings.
To understand the mortgage base securities we need to go over the topic of SECURITIZATION which is a very important topic for CAIIB EXAM 2022.
Securitization is a complex procedure heavily influenced by the jurisdiction in which it is carried out. Securitization, among other things, spreads risk and allows investors to select different levels of risk and investment. Following are the fundamentals:
- Banks and other lenders sell mortgage loans (mortgage notes), which are then put into a special purpose company (SPV).
- These loans are grouped into collections, or “pools,” by the purchaser or assignee.
- The pools are securitized via mortgage-backed securities issued by the purchaser or assignee.
A commercial mortgage-backed security (CMBS) is secured by commercial and multi-family properties such as apartment buildings, retail or office properties, hotels, schools, industrial properties, and other commercial sites. In contrast, a residential mortgage-backed security (RMBS) is secured by single-family or two- to four-family real estate. A CMBS is a different type of security than RMBS
Pros and Cons
Inflation was undermining a traditional housing funding source, the savings and loan associations (or thrifts), which were limited to offering uncompetitive 5.75 percent interest rates on savings accounts and thereby losing savers’ money to money market funds. MBSs was nationwide in scope and regionally varied, unlike the old localised, inefficient mortgage market, where there may be a deficit or surplus of funds at any given time. Mortgage-backed securities promoted increased specialisation among financial institutions by removing interest rates from the banking industry.
Mortgage-backed securities, on the other hand, may have “inexorably contributed to the emergence of the subprime market” and “generated hidden, systemic vulnerabilities.” They also “broke the link between lenders and borrowers.” “Historically, just around 2% of homeowners lost their homes to foreclosure,” but with securitization, “a lender no longer had a stake in whether the borrower could make his or her payments.”
After discussing all these topics, we would like to tell you that IIBF LEARNING CENTER provides you with the CAIIB STUDY MATERIAL to help you get through CAIIB EXAM 2022.
Read Also: IIBF CAIIB RETAIL BANKING QUESTION PDF
RETAIL BANKING CLASSES 2022 BY LEARNING SESSIONS ON YOUTUBE
CAIIB EXAM 2022 is tough to clear at one attempt but worry not; we are here for you. We take live LEARNING SESSIONs on YouTube along with the recorded videos which are available in 2 forms- one only in the English language and the other being a mixture of English and Hindi language in our IIBF Learning Center App. You can choose to watch either Live sessions or recorded classes at your convenience. These lectures will help you to understand the concepts clearly. Along with YouTube sessions, IIBF LEARNING CENTER provides recorded video lectures, along with which we provide complementary ePDFs. This CAIIB STUDY MATERIAL 2022 would help you clear the CAIIB EXAM 2022 quickly.