An Introduction to Banking
Liquidity Risk and Asset-Liability Management
Published on 2. August 2011
382 pages
978-1-119-99358-2 (ISBN)
Description
"A great write-up on the art of banking. Essential reading for anyone working in finance."
Dan Cunningham, Senior Euro Cash & OBS Dealer, KBC Bank NV, London
"Focused and succinct review of the key issues in bank risk management."
Graeme Wolvaardt, Head of Market Risk Control, Europe Arab Bank plc, London
The importance of banks to the world's economic system cannot be overstated. The foundation of consistently successful banking practice remains efficient asset-liability management and liquidity risk management.
This book introduces the key concepts of banking, concentrating on the application of robust risk management principles from a practitioner viewpoint, and how to incorporate these principles into bank strategy.
Detailed coverage includes:
* Bank strategy and capital
* Understanding the yield curve
* Principles of asset-liability management
* Effective liquidity risk management
* The role of the bank ALM committee
Written in the author's trademark accessible style, this book is a succinct and focused analysis of the core principles of good banking practice.
Dan Cunningham, Senior Euro Cash & OBS Dealer, KBC Bank NV, London
"Focused and succinct review of the key issues in bank risk management."
Graeme Wolvaardt, Head of Market Risk Control, Europe Arab Bank plc, London
The importance of banks to the world's economic system cannot be overstated. The foundation of consistently successful banking practice remains efficient asset-liability management and liquidity risk management.
This book introduces the key concepts of banking, concentrating on the application of robust risk management principles from a practitioner viewpoint, and how to incorporate these principles into bank strategy.
Detailed coverage includes:
* Bank strategy and capital
* Understanding the yield curve
* Principles of asset-liability management
* Effective liquidity risk management
* The role of the bank ALM committee
Written in the author's trademark accessible style, this book is a succinct and focused analysis of the core principles of good banking practice.
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03/2011
Wiley
€47.90
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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 ANDLEVERAGE.
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.
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 ANDLEVERAGE.
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.
