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Banking Consolidation Notes

LPC Law Notes > Finance and Capital Markets Notes

This is an extract of our Banking Consolidation document, which we sell as part of our Finance and Capital Markets Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Finance and Capital Markets Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Reasons for Banking
Why borrow money?
To make money
Why Lend?
To make money
Why banking matters?
Because people want to make money

Main issues in Banking First issue:
Will the lender get its money bank?
Second issue:
Will the borrower be able to make payments when due?
These two issues are the RISKS that the client wants to identify, reduce, manage and eliminate. Everything we did in banking has to do with making sure that these RISKS are dealt with:

Dealing with the risk:

1. Identifying the risk
- From Lender's point of view = Due diligence
- From Borrower's point of view = Is it sound and for the benefit of the Co. to borrow?

2. Protecting against the risk
- Reduce the risk to acceptable levels
- Manage an on-going risk
- Eliminate unacceptable risk (including not lending) Bank Loans v Bonds
? They fundamentally do the same thing, the risks are "in principle" the same
? The difference are in "scale" and "practicality"
- Scale = bonds are used for larger amounts (if Co. needs 100s of millions use a Bond, if Co. needs 10s of millions use a loan). Bonds are more expensive to set up therefore they are only economic when raising substantial funds.
- Banks are reluctant (or unable) to lend very large sums because: a) are required by law to keep a certain amount of money in their accounts b) the risk may be to high, or c) because they do not have all the money
- there are more bondholders than banks in a syndicate - so the borrower is spreading the risk as well as the lenders (don't have to lend large sums).
- Practicality = bonds have very different dynamics:

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