Executive Summary for Peralta (A)
Peralta Bank was doing well in terms of making good year on year profit and a huge liquidity base. The loan account of the bank was healthy. However, indicators like the loan to deposit ratio was decreasing, which is always an alarming sign for a bank. The loan account was also not growing as quality loan buyers were not available and Peralta was only committed to disburse loans to quality buyers. However, making an investment in short term instruments was not profitable as the short term yield rate was pretty low. Long term investment options like 30 year bonds were profitable as they offered high yield rates, but that would have reduced the flexibility of the company. Short term investments would have provided flexibility, but the profitability of the company would reduce. Mortgage backed securities offered Peralta a solution to leverage the high long term rates without losing much of the flexibility as mortgage backed bond market was relatively active. The only problem with mortgage backed securities was that it was difficult to gauge the actual risk of the security, because it was composed of many underlined high breed assets and securities of different classes.
Executive Summary for Peralta (B)
Denecker et al (2014) and McCormick (2014), in their articles, have discussed the importance of information technology for banks, and how the modern banks are not taking adequate measures for catering to the emerging banking trends. McCormick, in her article, has presented survey results as to how much importance banks attach to the information technology. From the results, it seems that almost all the banks understand the importance of IT, but only a handful of them are clear about their future IT strategies. Denecker et al (2014) have focused more on those activities of the banks that are slowly slipping away to the non-banking corporations like Google, Amazon, and Pay Pal. A lion’s share of the fee-based payments, which banks were supposed to receive for mobile and online transactions, is now earned by these non-banking operators. Denecker et al predicted that the continuation of this trend may encourage the non-banking organizations to even attack the core banking operations like deposits and loans in the near future. Both Denecker et al and McCormick recommend for the banks to implement IT as the strategic differentiator in their future services.
