Tag: receeding economy

Traditionally commercial and custodian banking have been heavily dependent on monetary policies of the country they are operating in. The main source of income for the existing system is majorly vested in investments and services provided to customers. Implementation of these strategies can be through various channels, but majorly sum up to a common end game: generate revenues. But with the economic landscape shifting drastically, the existing banking system has slowly started to transform into a loss stricken one. Let’s look into what has been plaguing the banking system and how can we avert the impending disaster:

Bank routines for revenues:

As already stated, banks have various channels to earn revenues. Major categories include:

Investments:

Major Banks (both commercial and custodian) acquire money from their customers by operating savings account. As a part of one of the services they offer, they store the money of customers and ensure its safety. Idle money over a period of time leads to devaluation as it means loss of investment opportunities. Hence banks go for viable investments for reaping profits out of the stored money. These investments are dependent on a multiple conditions and at times might not result in profits in a receeding economy.

Services:

Banks offer a host of services to customers for which they levy a service charge that would generate revenue. Few of these services include storing money, transfer of money to other stake holders, fixed deposits and storage boxes. For the stored money, banks are able to provide fixed amount of interest in exchange for the right to invest the money in a better way. For transfer and handling of money, they levy service fee and transaction fee that would generate revenue. Fixed deposits and storage boxes also generate revenue in a manner similar to savings accounts. Hence this range of services provides significant revenue for commercial banks.

Monetary policies hampering this model:

The economic dynamics of the world has slowly been shifting towards a detrimental equilibrium that enforces negative monetary policies. Owing to heavy recession and other obstacles, central banks are enforcing negative interest rates that are further hampering the economy of the country. While the negative interest rates would deprive the banks of the investments they earn, it would also halt the commercial banking services.

Even in the long run, these policies would cripple the economy. Irrespective of the time frame, the banking system would take an irreparable hit that would lead to economic downfall.

In the next segment, we see how banks try to combat these adverse conditions and how can disruptive technologies help to reinforce/transform the existing sytem.