This is a presentation targeted to non-economics major, to understand where does money come from and how to achieve sustainability of bank business. The script is available at http://getthingsright.blogspot.com/2010/05/1-opening-banking-business-is-one-of.html

1. Fundamentals of Banking Yoshi

3. Money Creation (Seigniorage) Lending Account Transfer Asset Liability Account A Account C Account B Bank Deposit This is also Money!!

4. Money Supply increases by Banks Money Creation (Multiple Effect) Bank 1 Bank 2 Account A Account C Account B Account A Account C Account B

5. Money Creation (Regulatory Cost) Account A Account C Account B Account A Account C Account B Multiple Effect does NOT Continue permanently Account A Account C Account B Reserve Reserve Central Bank 100% 80% 64% 20% 16% Bank 1 Bank 2

6. Asset Nostro 2 Monetary Base (called ‘M0’ ) High Powered Money Central Bank Nostro X Bank 1 Bank 2 Bank X Nostro 1 Google in future?

9. Banking / Shadow Banking Low (So far …. ) High Regulation Trading (Leverage) Lending Money Creation Hedge Funds Investment Banks Commercial Banks Who Shadow Banking Banking

11. Balance Sheet Equity Debt Long Term Asset Short Term Asset Lending Investment Asset Liability

13. Maturity Ladder In 5 Years Asset Liability Deposit Loan A/C Lending Present Future Customer In 10 Years Mismatch ! Bank In 5 Years Pay In 10 Years Receive

14. Basis Point Value Interest Up/ No Change on Value Asset Liability Bond Bond Present Future Price Sensitivity to Interest (Duration) Mismatch ! Bank Liability Interest Up/ Value Dropped Liability High Asset Low Liability

15. Value At Risk (VaR) Value Stable Asset Liability Portfolio Portfolio Present Future Historical Data Indicates Max Loss of the Portfolio can be High (= Risk!) Bank Liability Value Unstable