A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either indirectly through capital markets. Due to their importance in the financial stability of a country, banks are regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords. Banking in its modern sense evolved in the 14th century in the prosperous cities of Renaissance Italy but in many ways was a continuation of ideas and concepts of credit and lending that had their roots in the ancient world. In the history of banking, a number of banking dynasties – notably, the Medicis, the Fuggers, the Welsers, the Berenbergs, the Rothschilds – have played a central role over many centuries.
The oldest existing retail bank is Banca Monte dei Paschi di Siena, while the oldest existing merchant bank is Berenberg Bank. The concept of banking may have begun in ancient Assyria and Babylonia, with merchants offering loans of grain as collateral within a barter system. Lenders in ancient Greece and during the Roman Empire added two important innovations: they accepted deposits and changed money. Archaeology from this period in ancient China and India shows evidence of money lending. More modern banking can be traced to medieval and early Renaissance Italy, to the rich cities in the centre and north like Florence, Siena and Genoa; the Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches in many other parts of Europe. One of the most famous Italian banks was the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397; the earliest known state deposit bank, Banco di San Giorgio, was founded in 1407 at Italy. Modern banking practices, including fractional reserve banking and the issue of banknotes, emerged in the 17th and 18th centuries.
Merchants started to store their gold with the goldsmiths of London, who possessed private vaults, charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issued receipts certifying the quantity and purity of the metal they held as a bailee; the goldsmiths began to lend the money out on behalf of the depositor, which led to the development of modern banking practices. The goldsmith paid interest on these deposits. Since the promissory notes were payable on demand, the advances to the goldsmith's customers were repayable over a longer time period, this was an early form of fractional reserve banking; the promissory notes developed into an assignable instrument which could circulate as a safe and convenient form of money backed by the goldsmith's promise to pay, allowing goldsmiths to advance loans with little risk of default. Thus, the goldsmiths of London became the forerunners of banking by creating new money based on credit; the Bank of England was the first to begin the permanent issue of banknotes, in 1695.
The Royal Bank of Scotland established the first overdraft facility in 1728. By the beginning of the 19th century a bankers' clearing house was established in London to allow multiple banks to clear transactions; the Rothschilds pioneered international finance on a large scale, financing the purchase of the Suez canal for the British government. The word bank was taken Middle English from Middle French banque, from Old Italian banco, meaning "table", from Old High German banc, bank "bench, counter". Benches were used as makeshift desks or exchange counters during the Renaissance by Jewish Florentine bankers, who used to make their transactions atop desks covered by green tablecloths; the definition of a bank varies from country to country. See the relevant country pages under for more information. Under English common law, a banker is defined as a person who carries on the business of banking by conducting current accounts for his customers, paying cheques drawn on him/her and collecting cheques for his/her customers.
In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including cheques, this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking'. Although this definition seems circular, it is functional, because it ensures that the legal basis for bank transactions such as cheques does not depend on how the bank is structured or regulated; the business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business; when looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, not in general. In particular, most of the definitions are from legislation that has the purpose of regulating and supervising banks rather than regulating the actual business of banking.
However, in many cases the statutory definition mirrors the common law one. Examples of statutory definitions: "banking business" means the business of receiving money on current or deposit account and collecting cheques drawn by or paid in by customers, the making
Value at risk
Value at risk is a measure of the risk of loss for investments. It estimates how much a set of investments might lose, given normal market conditions, in a set time period such as a day. VaR is used by firms and regulators in the financial industry to gauge the amount of assets needed to cover possible losses. For a given portfolio, time horizon, probability p, the p VaR can be defined informally as the maximum possible loss during that time after we exclude all worse outcomes whose combined probability is at most p; this assumes mark-to-market pricing, no trading in the portfolio. For example, if a portfolio of stocks has a one-day 5% VaR of $1 million, that means that there is a 0.05 probability that the portfolio will fall in value by more than $1 million over a one-day period if there is no trading. Informally, a loss of $1 million or more on this portfolio is expected on 1 day out of 20 days. More formally, p VaR is defined such that the probability of a loss greater than VaR is p while the probability of a loss less than VaR is 1−p.
A loss which exceeds the VaR threshold is termed a "VaR breach". It is important to note that, for a fixed p, the p VaR does not assess the magnitude of loss when a VaR breach occurs and therefore is considered by some to be a questionable metric for risk management. For instance, assume someone makes a bet; the terms are that they win $100 if this does not lose $12,700 if it does. That is, the possible loss amounts are $0 or $12,700; the 1% VaR is $0, because the probability of any loss at all is 1/128, less than 1%. They are, exposed to a possible loss of $12,700 which can be expressed as the p VaR for any p <= 0.78%. VaR has four main uses in finance: risk management, financial control, financial reporting and computing regulatory capital. VaR is sometimes used in non-financial applications as well. However, it is a controversial risk management tool. Important related ideas are economic capital, stress testing, expected shortfall, tail conditional expectation. Common parameters for VaR are 1% and 5% probabilities and one day and two week horizons, although other combinations are in use.
The reason for assuming normal markets and no trading, to restricting loss to things measured in daily accounts, is to make the loss observable. In some extreme financial events it can be impossible to determine losses, either because market prices are unavailable or because the loss-bearing institution breaks up; some longer-term consequences of disasters, such as lawsuits, loss of market confidence and employee morale and impairment of brand names can take a long time to play out, may be hard to allocate among specific prior decisions. VaR marks the boundary between extreme events. Institutions can lose far more than the VaR amount; the probability level is about often specified as one minus the probability of a VaR break, so that the VaR in the example above would be called a one-day 95% VaR instead of one-day 5% VaR. This does not lead to confusion because the probability of VaR breaks is always small less than 50%. Although it always represents a loss, VaR is conventionally reported as a positive number.
A negative VaR would imply the portfolio has a high probability of making a profit, for example a one-day 5% VaR of negative $1 million implies the portfolio has a 95% chance of making more than $1 million over the next day. Another inconsistency is that VaR is sometimes taken to refer to profit-and-loss at the end of the period, sometimes as the maximum loss at any point during the period; the original definition was the latter, but in the early 1990s when VaR was aggregated across trading desks and time zones, end-of-day valuation was the only reliable number so the former became the de facto definition. As people began using multiday VaRs in the second half of the 1990s, they always estimated the distribution at the end of the period only, it is easier theoretically to deal with a point-in-time estimate versus a maximum over an interval. Therefore, the end-of-period definition is the most common both in practice today; the definition of VaR is nonconstructive. Moreover, there is wide scope for interpretation in the definition.
This has led to two broad types of VaR, one used in risk management and the other for risk measurement. The distinction is not sharp and hybrid versions are used in financial control, financial reporting and computing regulatory capital. To a risk manager, VaR is a system, not a number; the system is run periodically and the published number is compared to the computed price movement in opening positions over the time horizon. There is never any subsequent adjustment to the published VaR, there is no distinction between VaR breaks caused by input errors, computation errors and market movements. A frequentist claim is made, that the long-term frequency of VaR breaks will equal the specified probability, within the limits of sampling error, that the VaR breaks will be independent in time and independent of the level of VaR; this claim is validated by a comparison of published VaRs to actual price movements. In this interpretation, many different systems could produce VaRs with good backtests, but wide disagreements on daily VaR values.
For risk measurement a number is neede
Liability (financial accounting)
In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. A liability is defined by the following characteristics: Any type of borrowing from persons or banks for improving a business or personal income, payable during short or long time. An equitable obligation is a duty based on moral considerations. A constructive obligation is an obligation, implied by a set of circumstances in a particular situation, as opposed to a contractually based obligation; the accounting equation relates assets and owner's equity: Assets = Liabilities + Owner's Equity The accounting equation is the mathematical structure of the balance sheet. The most accepted accounting definition of liability is the one used by the International Accounting Standards Board.
The following is a quotation from IFRS Framework: A liability is a present obligation of the enterprise arising from past events, the settlement of, expected to result in an outflow from the enterprise of resources embodying economic benefits Regulations as to the recognition of liabilities are different all over the world, but are similar to those of the IASB. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU. Liabilities are debts and obligations of the business they represent as creditor's claim on business assets. Liabilities are reported on a balance sheet and are divided into two categories: Current liabilities — these liabilities are reasonably expected to be liquidated within a year, they include payables such as wages, accounts and accounts payable, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations. Long-term liabilities — these liabilities are reasonably expected not to be liquidated within a year.
They include issued long-term bonds, notes payables, long-term leases, pension obligations, long-term product warranties. Liabilities of uncertain value or timing are called provisions; when a company deposits cash with a bank, the bank records a liability on its balance sheet, representing the obligation to repay the depositor on demand. In accordance with the double-entry principle, the bank records the cash, itself, as an asset; the company, on the other hand, upon depositing the cash with the bank, records a decrease in its cash and a corresponding increase in its bank deposits. A debit either decreases a liability. According to the principle of double-entry, every financial transaction corresponds to both a debit and a credit; when cash is deposited in a bank, the bank is said to "debit" its cash account, on the asset side, "credit" its deposits account, on the liabilities side. In this case, the bank is debiting an asset and crediting a liability, which means that both increase; when cash is withdrawn from a bank, the opposite happens: the bank "credits" its cash account and "debits" its deposits account.
In this case, the bank is crediting an asset and debiting a liability, which means that both decrease. Contingent liability Assets Financial Accounting
Eliot Laurence Spitzer is an American politician and educator. A member of the Democratic Party, he served as the 54th Governor of New York from 2007 until 2008. After serving for six years as a prosecutor with the office of the Manhattan District Attorney, Spitzer worked as an attorney in private practice with several New York law firms, he was elected to two four-year terms as the Attorney General of New York, serving from 1999 to 2006. Spitzer was elected Governor of New York in 2006 and served as the 54th Governor of New York from January 1, 2007, until his resignation on March 17, 2008, in the midst of a prostitution scandal. Since 2008, Spitzer has worked as an adjunct instructor. Spitzer was born in the Bronx, the son of Anne, an English literature professor, Bernard Spitzer, a real estate mogul, his paternal grandparents were Galician Jews, born in Tluste, now Ukraine. His maternal grandparents, born in the 1890s, were Jewish emigrants from Ottoman-era Palestine. Spitzer is the youngest of three children.
He was raised in the affluent Riverdale section of The Bronx in New York City. His family was not religious, Spitzer did not have a Bar Mitzvah, he is a 1977 graduate of Horace Mann School. After scoring 1590 out of 1600 on the Scholastic Aptitude Test, he received a Bachelor's degree at Princeton University and his Juris Doctor at Harvard Law School. At Princeton, he was elected chairman of the undergraduate student government and graduated in 1981, he has said he received a perfect score on the Law School Admission Test, went on to attend Harvard Law School, where he met and married Silda Wall. Spitzer was an editor of the Harvard Law Review. Upon receiving his Juris Doctor, Spitzer clerked for Judge Robert W. Sweet of the U. S. District Court for the Southern District of New York joined the law firm of Paul, Rifkind, Wharton & Garrison, he stayed there for less than two years before leaving to join the New York County District Attorney's office. Spitzer joined the staff of Manhattan District Attorney Robert Morgenthau, where he became chief of the labor-racketeering unit and spent six years pursuing organized crime.
Spitzer's biggest case came in 1992, when he led the investigation that ended the Gambino crime family's organized crime control of Manhattan's trucking and garment industries. Spitzer devised a plan to set up his own sweatshop in the city's garment district, where he turned out shirts and sweaters, hired 30 laborers; the shop manager got close to the Gambinos, officials were able to plant a bug in their office. The Gambinos, rather than being charged with extortion –, hard to prove – were charged with antitrust violations. Joseph and Thomas Gambino, the latter being an high-ranking member, two other defendants took the deal and avoided jail by pleading guilty, paying $12 million in fines and agreeing to stay out of the business. Spitzer left the District Attorney's office in 1992 to work at the law firm of Skadden, Slate, Meagher & Flom. From 1994 to 1998 he worked at the law firm Constantine and Partners on a number of consumer rights and antitrust cases. In February 1991 Robert Abrams, a Democrat and the longstanding New York State Attorney General, announced his intention to run for the U.
S. Senate seat for New York occupied by incumbent Republican U. S. Senator Al D'Amato; when he announced his intention the Senate election was two years in the future. Abrams won the nomination in the Democratic primary but narrowly lost to D'Amato in the general election in November 1992. Ten months in September 1993, Abrams announced that he would resign his position as Attorney General as of December 31, 1993, although he still had one year remaining in his term. To fill this vacancy the New York State Legislature elected Assemblyman G. Oliver Koppell to serve out the remainder of the Attorney General's term during 1993. Thirty-four-year-old Spitzer decided to run as a Democratic candidate in the 1994 election for Attorney General, as did Koppell, Brooklyn Family Court Judge Karen Burstein, Kings County DA Charles J. Hynes. At the time, Spitzer was a young and unknown defense attorney representing white-collar criminals; when he announced his campaign Spitzer suggested that, if elected, he would use the state's antitrust laws to pursue corporate polluters.
Spitzer was the only candidate to support the death penalty. In a televised debate among the candidates, Spitzer was criticized for financing his campaign using $3 million of his own and family money. Despite heavy funding from his own family, he placed last among the four Democratic candidates for the nomination, receiving just 19% of the vote. Burstein, the only woman and gay candidate, won the primary with 31% of vote. Burstein subsequently lost in the general election to Republican Dennis Vacco, part of a nationwide Republican sweep, that included the election of Republican George Pataki as the new Governor of New York displacing the Democratic incumbent, Governor Mario Cuomo. Four years Spitzer again wanted to run for Attorney General and on May 6, 1998, he announced he would run for the office for a second time. On May 28, he emerged as the front-runner among the Democratic candidates, ranking first at the Democratic convention with 36% of the vote, he had the most amount of money, with over $2 million.
In September, he won the Democratic primary election with 42% of the vote. He defeated State Senator Catherine Abate and former Governor's Counsel Evan Davis. In the general election Spitzer would face a Republican. In late
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can trigger payment; the policy holder pays a premium, either or as one lump sum. Other expenses, such as funeral expenses, can be included in the benefits. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are written into the contract to limit the liability of the insurer. Modern life insurance bears some similarity to the asset management industry and life insurers have diversified their products into retirement products such as annuities. Life-based contracts tend to fall into two major categories: Protection policies – designed to provide a benefit a lump sum payment, in the event of a specified occurrence.
A common form—more common in years past—of a protection policy design is term insurance. Investment policies – the main objective of these policies is to facilitate the growth of capital by regular or single premiums. Common forms are whole life, universal life, variable life policies. An early form of life insurance dates to Ancient Rome; the first company to offer life insurance in modern times was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot and Sir Thomas Allen. Each member made an annual payment per share on one to three shares with consideration to age of the members being twelve to fifty-five. At the end of the year a portion of the "amicable contribution" was divided among the wives and children of deceased members, in proportion to the number of shares the heirs owned; the Amicable Society started with 2000 members. The first life table was written by Edmund Halley in 1693, but it was only in the 1750s that the necessary mathematical and statistical tools were in place for the development of modern life insurance.
James Dodson, a mathematician and actuary, tried to establish a new company aimed at offsetting the risks of long term life assurance policies, after being refused admission to the Amicable Life Assurance Society because of his advanced age. He was unsuccessful in his attempts at procuring a charter from the government, his disciple, Edward Rowe Mores, was able to establish the Society for Equitable Assurances on Lives and Survivorship in 1762. It was the world's first mutual insurer and it pioneered age based premiums based on mortality rate laying "the framework for scientific insurance practice and development" and "the basis of modern life assurance upon which all life assurance schemes were subsequently based". Mores gave the name actuary to the chief official—the earliest known reference to the position as a business concern; the first modern actuary was William Morgan, who served from 1775 to 1830. In 1776 the Society carried out the first actuarial valuation of liabilities and subsequently distributed the first reversionary bonus and interim bonus among its members.
It used regular valuations to balance competing interests. The Society sought to treat its members equitably and the Directors tried to ensure that policyholders received a fair return on their investments. Premiums were regulated according to age, anybody could be admitted regardless of their state of health and other circumstances; the sale of life insurance in the U. S. began in the 1760s. The Presbyterian Synods in Philadelphia and New York City created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived. In the 1870s, military officers banded together to found both the Army and the Navy Mutual Aid Association, inspired by the plight of widows and orphans left stranded in the West after the Battle of the Little Big Horn, of the families of U. S. sailors. The person responsible for making payments for a policy is the policy owner, while the insured is the person whose death will trigger payment of the death benefit.
The owner and insured may not be the same person. For example, if Joe buys a policy on his own life, he is both the insured, but if Jane, his wife, buys a policy on Joe's life, she is the owner and he is the insured. The policy owner is the guarantor and he will be the person to pay for the policy; the insured is a participant in the contract, but not a party to it. The beneficiary receives policy proceeds upon the insured person's death; the owner designates the beneficiary. The owner can change the beneficiary. If a policy has an irrevocable beneficiary, any beneficiary changes, policy assignments, or cash value borrowing would require the agreement of the original beneficiary. In cases where the policy owner is not the insured, insurance companies have sought to limit policy purchases to those with an insurable interest in the CQV. For life insurance policies, close family members and business partners will be found to have an insurable interest; the insurable interest requirement demon
American International Group
American International Group, Inc. known as AIG, is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. As of December 31, 2016, AIG companies employed 56,400 people; the company operates through three core businesses: General Insurance, Life & Retirement, a standalone technology-enabled subsidiary. General Insurance includes Commercial, Personal Insurance, U. S. and International field operations. Life & Retirement includes Group Retirement, Individual Retirement and Institutional Markets. AIG's corporate headquarters are in New York City and the company has offices around the world. AIG serves 87% of the Fortune Global 500 and 83% of the Forbes 2000. AIG was ranked 60th on the 2018 Fortune 500 list. According to the 2016 Forbes Global 2000 list, AIG is the 87th largest public company in the world. On December 31, 2017, AIG had $65.2 billion in shareholder equity. AIG was a central player in the financial crisis of 2008, it was bailed out by the federal government for $180 billion, the government took control.
The Financial Crisis Inquiry Commission of the US government concluded AIG failed because it sold massive amounts of insurance without hedging its investment. Its enormous sales of credit default swaps were "made without putting up initial collateral, setting aside capital reserves, or hedging its exposure — a profound failure in corporate governance its risk-management practices." The US government sold off its shares after the crisis and completed the process in 2012. AIG was founded December 19, 1919 when American Cornelius Vander Starr established a general insurance agency, American Asiatic Underwriters, in Shanghai, China. Business grew and two years Starr formed a life insurance operation. By the late 1920s, AAU had branches throughout China and Southeast Asia, including the Philippines and Malaysia. In 1926, Mr. Starr opened his first office in the United States, American International Underwriters Corporation, he focused on opportunities in Latin America and, in the late 1930s, AIU entered Havana, Cuba.
The steady growth of the Latin American agencies proved significant as it would offset the decline in business from Asia due to the impending World War II. In 1939, Mr. Starr moved his headquarters from China, to New York City. After World War II, American International Underwriters entered Japan and Germany, to provide insurance for American military personnel. Throughout the late 1940s and early 1950s, AIU continued to expand in Europe, with offices opening in France and the United Kingdom. In 1952, Mr. Starr began to focus on the American market by acquiring Globe & Rutgers Fire Insurance Company and its subsidiary, American Home Fire Assurance Company. By the end of the decade, C. V. Starr's general and life insurance organization included an extensive network of agents and offices in over 75 countries. In 1960, C. V. Starr hired Maurice R. Greenberg to develop an international health business. Two years Mr. Greenberg reorganized one of C. V. Starr's U. S. holdings into a successful multiple line carrier.
Greenberg focused on selling insurance through independent brokers rather than agents to eliminate agent salaries. Using brokers, AIU could price insurance according to its potential return if it suffered decreased sales of certain products for great lengths of time with little extra expense. In 1967, American International Group, Inc. was incorporated as a unifying umbrella organization for most of C. V. Starr's life insurance businesses. In 1968, Starr named Greenberg his successor; the company went public in 1969. The 1970s presented many challenges for AIG as operations in the Middle East and Southeast Asia were curtailed or ceased altogether due to the changing political landscape. However, AIG continued to expand its markets by introducing specialized energy and shipping products to serve the needs of niche industries. By 1979, with a growing workforce and a worldwide network of offices, AIG offered clients superior technical and risk management skills in an competitive marketplace. During the 1980s, AIG continued expanding its market distribution and worldwide network by offering a wide range of specialized products, including pollution liability and political risk.
In 1984, AIG listed its shares on the New York Stock Exchange. Throughout the 1990s, AIG developed new sources of income through diverse investments, including the acquisition of International Lease Finance Corporation, a provider of leased aircraft to the airline industry. In 1992, AIG received the first foreign insurance license granted in over 40 years by the Chinese government. Within the U. S. AIG acquired SunAmerica Inc. a retirement savings company, in 1999. The early 2000s saw a marked period of growth as AIG acquired American General Corporation, a leading domestic life insurance and annuities provider, AIG entered new markets including India. In February 2000, AIG created a strategic advisory venture team with the Blackstone Group and Kissinger Associates "to provide financial advisory services to corporations seeking high level independent strategic advice." AIG was an investor in Blackstone from 1998 to March 2012, when it sold all of its shares in the company. Blackstone acted as an adviser for AIG during the 2007-2008 financial crisis.
In March 2003 American General merged with Old Line Life Insurance Company. In the early 2000s, AIG made significant investments in Russia as the country recovered from its financial crisis. In July 2003, Maurice Greenberg met with Putin to discuss AIG's investments and improving U. S.-Russia economic ties, in anticipation of Putin's meeting with U. S. Presi