An Introduction to Banking
Liquidity Risk and Asset-Liability Management
Published on 4. March 2011
Book
Paperback/Softback
384 pages
978-0-470-68725-3 (ISBN)
Description
An Introduction to Banking provides an introduction to liquidity risk management and asset-liability management. It begins with an overview of modern banking, the goals of a bank, how they operate, and how a breakdown in the banking system contributed to the crisis. Subsequent chapters introduce the fundamental workings of a bank and explore ALM and liquidity risk management in greater detail. As regulators move to enforce liquidity risk management in banks, and ongoing needs to better manage a bank's assets and liabilities, this book is a must-have reference for all finance practitioners.
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Other editions
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Book
04/2018
2nd Edition
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Additional editions
E-Book
09/2011
Wiley
€39.99
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E-Book
08/2011
Wiley
€39.99
Available for download
Persons
Dr Moorad Choudhry is Managing Director, Head of Business Treasury, Global Banking and Markets, at The Royal Bank of Scotland. He is Visiting Professor at London Metropolitan Business School, Visiting Research Fellow at the ICMA Centre, University of Reading, Associate Research Fellow at the School of Information Systems, Computing and Mathematics, Brunel University, a Fellow of the Chartered Institute for Securities and Investment, and a Fellow of the ifs-School of Finance.
Content
Foreword.
Preface.
About the author.
1 BANK BUSINESS AND CAPITAL.
Banking business.
Interest income.
Fees and commissions.
Trading income.
Costs.
Capital markets.
Scope of banking activities.
Capital.
Banking and trading books.
Financial statements and ratios.
The balance sheet.
Profit and loss report.
References.
2 THE MONEY MARKETS.
Introduction.
Securities quoted on a yield basis.
Money market deposits.
Certificates of deposit.
CD yields.
Securities quoted on a discount basis.
Treasury bills.
Banker's acceptances.
Eligible banker's acceptance.
Commercial paper.
Commercial paper programmes.
Commercial paper yields.
Asset-backed commercial paper.
Repo.
Definition.
The classic repo.
Examples of classic repo.
The sell/buyback.
Examples of sell/buyback.
Repo collateral.
Legal treatment.
Margin.
Variation margin.
Currencies using money market year base of 365 days.
3 THE YIELD CURVE.
Importance of the yield curve.
Using the yield curve.
Yield-to-maturity yield curve.
Analysing and interpreting the yield curve.
Theories of the yield curve.
The zero-coupon yield curve.
Example calculation illustrations.
Forward rate calculation for money market term.
Understanding forward rates.
Bibliography.
4 INTRODUCTION TO TRADING AND HEDGING.
Trading approach.
The yield curve and interest rate expectations.
Credit intermediation by the repo desk.
Specials trading.
Matched book trading.
Interest-rate-hedging tools.
Interest rate futures.
Forward rate agreements.
FRA mechanics.
Overnight interest rate swaps.
Credit risk hedging.
Understanding credit risk.
Credit rating rationale.
Credit limit setting and rationale.
Loan origination process standards.
Bibliography.
5 ASSET AND LIABILITY MANAGEMENT I.
Basic concepts.
Liquidity gap.
Managing liquidity.
The liquidity ratio.
The liquidity portfolio.
6 ASSET AND LIABILITY MANAGEMENT II.
Introduction.
Basic concepts.
Interest rate risk and source.
The banking book.
The ALM desk.
Traditional ALM.
Developments in ALM.
Liquidity and interest rate risk.
The liquidity gap.
Gap risk and limits.
Liquidity management.
Interest rate gap.
Portfolio-modified duration gap.
Critique of the traditional approach.
The cost of funding.
Securitization.
The securitization process.
Benefits of securitization.
Generic ALM policy for different-sized banks.
NPV and value-at-risk.
Bibliography.
7 ASSET AND LIABILITY MANAGEMENT III: THE ALCO.
ALCO policy.
ALCO reporting.
8 BANK LIQUIDITY RISK MANAGEMENT.
The liquidity policy statement.
Principles of bank liquidity risk management.
Measuring bank liquidity risk: key metrics.
Internal funding rate policy.
Conclusion.
9 A SUSTAINABLE BANK BUSINESS MODEL: CAPITAL, LIQUIDITY AND LEVERAGE.
The new bank business model.
Liquidity risk management.
The liquid asset buffer.
Conclusions and recommendations.
References.
10 BANK REGULATORY CAPITAL.
Banking regulatory capital requirements.
Capital adequacy requirements.
A primer on Basel II.
Impact on specific sectors.
Basel III.
Bibliography.
Appendix A Summary of bank product line.
Appendix B Financial markets arithmetic.
Appendix C List of abbreviations and acronyms.
Index.