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Business Standard
Dec 4
Comment
The public sector Indian bank, with a lot of expertise in the field of recovery of Non-Performing Assets (NPAs), is exploring the possibility of floating a subsidiary for undertaking NPA management.
New York Times
Dec 3
Comment
The Chicago Board Options Exchange could launch an initial public offering by May following a recent settlement of a protracted legal dispute, according to The Wall Street Journal.
Business Standard
Dec 1
Comment
Kolkata headquartered HNG Group, the parent company of Hindusthan National Glass and Industries Ltd., has entered the float glass segment with the firing up of its first float furnace in Halol, Gujarat. Starting up with a production capacity of...
Times Online
Nov 29
Comment
Flybe, the regional airline, is preparing for a stock market flotation that will bring a windfall for its staff and shareholders.
Financial Times
Nov 26
Comment
Oleg Deripaska’s plans to have the aluminium group start trading by the end of the year are derailed after the Hong Kong Stock Exchange postpones a decision to approve it until December 3
Sydney Morning Herald
Nov 25
Comment
The BBC held talks with financial advisers about floating part of its commercial arm on the stock market, a report said.
The Australian
Nov 22
Comment
SANDS China has raised $US2.5 billion ($2.73bn) from its Hong Kong float, making it the seventh-largest IPO globally this year.
The Australian
Nov 20
Comment
BILLIONAIRE Clive Palmer plans to start spruiking a $US3 billion ($3.27bn) float of his company Resourcehouse in Hong Kong next week.
guardian.co.uk
Nov 20
Comment
Fund manager's original plan for £1.5bn IPO were cancelled two years ago when the financial crisis hit
Fund manager Gartmore ended months of speculation today by announcing that it will float on the London Stock Exchange in...
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more ▼WIKI ANALYSIS
WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
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The float refers to profits earned by a financial institution on assets that do not belong to that institution, but are held in custody for a client or other purpose. The float is an important source of profitability in a number of industries, such as:
- Retail banking: In the case of retail banking, customers' checking accounts often earn little or no interest. However, the bank can collectively invest the money its customers have deposited in higher-yielding investments such as mortgages. The bank then earns the difference between the interest paid on the mortgage and the interest paid to customers with deposits in checking accounts.
- Insurance: The float refers to the time period between when premiums are collected and claims paid out. During this time, insurers invest the premiums and generate returns. Legendary investor Warren Buffett of Berkshire Hathaway (BRK) was originally attracted to the insurance business since he could use low-cost float to earn higher returns on his successful investments.
- Retail Brokerage: In recent years, stock brokerage firms (particularly E*TRADE Financial (ETFC)) have made money by investing cash left in client trading accounts and earning a float on these assets.
Ways that financial institutions earn money on the float
- Turning short term deposits into long-term loans. Typically, interest rates rise when loans are longer-term, to compensate the lender for tying up money and making it inaccessible (this difference in interest rates is known as the Yield Curve. For example, a savings account that allows you to withdraw money at any time would pay a small interest rate, but a CD that leaves you unable to access your money for a period of months or years would pay a higher rate. While an individual bank customer might add or withdraw money unpredictably, the bank as a whole can generally count on having stable deposits across all its customers. This allows the bank to pay short-term interest on checking accounts, but then earn higher, long-term interest on these deposits by lending it out for long-term loans (such as mortgages, which typically last 30 years).
- Assuming risk. By pursuing riskier investments, a financial institution can earn greater returns on assets on deposit.
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