Discuss The Operation Of A Bank

Discuss the operation of a bank. Why can banks operate with so much more leverage (so much less equity capital) than ordinary business? Examine the financial statements of one of the big 3 banks incorporated in Singapore. Compute the leverage ratio for any of these three major banks (DBS, OCBC, and OUB).Compare this with the leverage ratio for any large American or European bank that ranks among the 50 largest banks in the world. How would you explain the difference? A ) Operation of a bank includes all the legal transactions executed by the bank in its day to day regular business alongside providing Loans, Investments, Mortgages, and undertaking the roles of an underwriter, Custodian, Trade facilitator, depending on the size and stretch of the bank.B ) Banks generally operate with much higher leverage as compared to other businesses because:Banks major role is that of a producer of liquid financial claims. Excluding states of uncertainty and issues related to agency problems, deposit insurance, taxes, and other distortions that lead banks to adopt levered capital structures, for banks under idealized conditions, high leverage is optimal given there is a market premium for the production of (socially valuable) liquid claims. <span