An Introduction to Banking: Liquidity Risk and Asset-Liability ManagementISBN: 978-0-470-68725-3
Paperback
384 pages
April 2011
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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.
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