Contemporary Financial Intermediation (eBook)

Stuart I. Greenbaum, Anjan V. Thakor (Autoren)

eBook Download: PDF | EPUB

2007 | 2. Auflage
672 Seiten
Elsevier Science (Verlag)
978-0-08-047681-0 (ISBN)

Infos

Stuart Greenbaum and Anjan Thakor bring a unique analytical approach to the subject of banks and banking in this completely revised and updated new edition. They expand the scope of the typical bank management course by addressing all types of deposit-type financial institutions and by explaining the why of intermediation rather than simply describing institutions, regulations, and market phenomena.This analytic approach strikes at the heart of financial intermediation by explaining why financial intermediaries exist and what they do. Specific regulations, economies, and policies will change, but the underlying philosophical foundations remain the same. This approach enables students to understand the foundational principles and to apply them to whatever context they encounter as professionals. It is a completely updated edition of a classic banking text. Online instructors manual and ppt slides are available to instructors on the publisher's website. The authors are recognized experts in banking.

* Completely undated edition of a classic banking text
* Online instructors manual and ppt slides available to instructors on publisher's website
* Authors are recognized experts in banking

---

Contemporary Financial Intermediation, Second Edition, brings a unique analytical approach to the subject of banks and banking. This completely revised and updated edition expands the scope of the typical bank management course by addressing all types of deposit-type financial institutions, and by explaining the why of intermediation rather than simply describing institutions, regulations, and market phenomena. This analytic approach strikes at the heart of financial intermediation by explaining why financial intermediaries exist and what they do. Specific regulations, economies, and policies will change, but the underlying philosophical foundations remain the same. This approach enables students to understand the foundational principles and to apply them to whatever context they encounter as professionals. This book is the perfect liaison between the microeconomics realm of information economics and the real world of banking and financial intermediation. This book is recommended for advanced undergraduates and MSc in Finance students with courses on commercial bank management, banking, money and banking, and financial intermediation. Completely undated edition of a classic banking text Authored by experts on financial intermediation theory, only textbook that takes this approach situating banks within microeconomic theory

Inhalt

Front Cover 1
Contemporary Financial Intermediation 4
Copyright Page 5
Dedication Page 6
Abbreviated Contents 8
Extended Contents 10
Preface 16
Pedagogy 16
Organization 17
Supplementary Materials 18
Acknowledgments 20
About the Authors 22
Stuart I. Greenbaum 22
Anjan V. Thakor 23
Part I: The Background 24
A Friendly Conversation 26
Introduction 26
The Conversation: 1991 26
Follow-Up to the Conversation: 2007 34
Chapter 1: Basic Concepts 36
Introduction 36
Risk Preferences 36
Diversification 39
Riskless Arbitrage 42
Options 43
Market Efficiency 44
Market Completeness 45
Asymmetric Information and Signaling 47
Agency and Moral Hazard 52
Time Consistency 55
Nash Equilibrium 57
Revision of Beliefs and Bayes Rule 58
References 60
Part II: What Is Financial Intermediation? 62
Chapter 2: The Nature and Variety of Financial Intermediation 64
Glossary of Terms 64
Introduction 65
What Are Financial Intermediaries? 66
The Variety of Financial Intermediaries 73
Depository Financial Intermediaries 76
Nondepository Intermediaries 84
The Role of the Government 95
Financial Intermediaries on the Periphery 95
Conclusion 98
Review Questions 99
Appendix 2.1 Measurement Distortions and the Balance Sheet 99
Appendix 2.2 Guide to Federal Reserve Regulations 101
References 111
Chapter 3: The What, How, and Why of Financial Intermediaries 114
Glossary of Terms 114
Introduction 115
Fractional Reserve Banking and the Goldsmith Anecdote 116
A Model of Banks and Regulation 120
The Macroeconomic Implications of Fractional Reserve Banking: The Fixed Coefficient Model 126
Large Financial Intermediaries 130
How Banks Can Help to Make Nonbank Financial Contracting More Efficient 132
The Empirical Evidence: Banks Are Special 133
Ownership Structure of Depository Financial Institutions 135
The Borrower’s Choice of Finance Source 138
Conclusion 140
Review Questions 142
Appendix 3.1 The Formal Analysis of Large Intermediaries 142
References 146
Part III: Major "On-Balance-Sheet" Risks in Banking 148
Chapter 4: Major Risks Faced by Banks 150
Glossary of Terms 150
Introduction 150
The Source of Business Risk 151
Credit, Interest Rate, and Liquidity Risks 152
The Term Structure of Interest Rates 155
Duration 164
Convexity 169
Interest Rate Risk 171
Liquidity Risk 174
Conclusion 180
Case Study Eggleston State Bank 181
Review Questions 185
Appendix 4.1 Dissipation of Withdrawal Risk Through Diversification 187
Appendix 4.2 Lender-of-Last-Resort Moral Hazard 187
References 189
Chapter 5: Spot Lending 192
Glossary of Terms 192
Introduction 194
Description of Bank Assets 194
What Is Lending? 200
Loans Versus Securities 202
Structure of Loan Agreements 203
Informational Problems in Loan Contracts and the Importance of Loan Performance 205
Credit Analysis: The Factors 208
Sources of Credit Information 229
Analysis of Financial Statements 231
Loan Covenants 235
Conclusion 238
Case Study Indiana Building Supplies, Inc. 239
Review Questions 242
Appendix 5.1 Trends in Credit Analysis 245
References 246
Chapter 6: Further Issues in Bank Lending 250
Glossary of Terms 250
Introduction 251
Loan Pricing and Profit Margins: General Remarks 251
Credit Rationing 261
The Spot Lending Decision 269
Long-Term Relationships and Moral Hazard 271
Loan Restructuring and Default 278
Conclusion 288
Case Study Zeus Steel, Inc. 289
Review Questions 296
References 299
Chapter 7: Special Topics in Credit: Syndicated Loans, Loan Sales, and Project Finance 302
Glossary of Terms 302
Introduction 302
Syndicated Lending 303
Project Finance 310
Conclusion 313
Review Questions 313
References 313
Part IV: Off the Bank’s Balance Sheet 316
Chapter 8: Off-Balance Sheet Banking and Contingent Claims Products 318
Glossary of Terms 318
Introduction 319
Loan Commitments: A Description 322
Rationale for Loan Commitments 327
Pricing of Loan Commitments 338
The Differences Between Loan Commitments and Put Options 340
Loan Commitments and Monetary Policy 343
Other Contingent Claims: Letters of Credit 344
Other Contingent Claims: Swaps 346
Other Contingent Claims: Credit Derivatives 352
Risks for Banks in Contingent Claims 353
Regulatory Issues 357
Conclusion 358
Case Study Youngstown Bank 359
Review Questions 364
References 365
Chapter 9: Securitization 368
Glossary of Terms 368
Introduction 369
Preliminary Remarks on the Economic Motivation for Securitization and Loan Sales 371
Different Types of Securitization Contracts 374
Going Beyond Preliminary Remarks on Economic Motivation: The "Why," "What," and "How Much Is Enough" of Securitization 386
Strategic Issues for a Financial Institution Involvedin Securitization 406
Comparison of Loan Sales and Loan Securitization 409
Conclusion 409
Case Study Lone Star Bank 410
Review Questions 414
References 416
Part V: The Deposit Contract 418
Chapter 10: The Deposit Contract and Insurance 420
Glossary of Terms 420
Introduction 421
The Deposit Contract 422
Liability Management 430
Deposit Insurance 432
The Great Deposit Insurance Debacle 454
Conclusion 458
Review Questions 458
References 459
Partn VI: Bank Regulation 462
Chapter 11: Objectives of Bank Regulation 464
Glossary of Terms 464
Introduction 465
The Essence of Bank Regulation 466
The Agencies of Bank Regulation 469
Market Structure and Competition 474
The Basel I Capital Accord 482
Safety and Soundness Regulation: Bank Portfolio Restrictions 489
Consumer Protection, Credit Allocation, and Monetary Control Regulation 490
Conclusion 498
Review Questions 498
References 499
Chapter 12: Milestones in Banking Legislation and Regulatory Reform 502
Glossary of Terms 502
Introduction 503
Milestones of Banking Legislation 503
Problems of Bank Regulation 512
The 1991 FDICIA and Beyond 520
Liquidity Constraints, Capital Requirements, and Monetary Policy 527
The Basel II Capital Accord 529
The Debate Over Capital Requirements 535
Conclusion 538
Review Questions 538
References 539
Part VII: Overall Management of the Bank 542
Chapter 13: Management of Risks and Opportunities in Banking 544
Glossary of Terms 544
Introduction 545
Opportunities and Risks in Banking 547
Day-to-Day Management 551
Crisis Management and Enterprise Risk Management 568
Strategic Planning 569
Case Study 577
Conclusion 579
Review Questions 579
References 579
Part VIII: Corporate Control and Governance 582
Chapter 14: Mergers and Acquisitions 584
Glossary of Terms 584
Introduction 585
Recent Trends in Mergers and Acquisitions in Banking 585
Corporate Control Issues 586
Mergers in Banking 595
Hostile Takeovers in Banking 600
Conclusion 605
Review Questions 605
References 606
Chapter 15: Investment Banking 610
Glossary of Terms 610
Introduction 610
What Investment Banks Do 611
Risk Management, Structured Finance, and Investment Banks 621
Conclusion 625
Appendix 15.1 625
References 629
Part IX: The Future 632
Chapter 16: The Future 634
Glossary of Terms 634
Introduction 634
Future Opportunities for Banks: Expanded Role for Relationship Banking and the Implications for Universal Banking, Financial Innovation, and Globalization 635
The Basel Initiative and Future Capital Accords 637
Conclusion 641
Review Questions 641
References 641
Index 642

Textauszug

A Friendly Conversation

Introduction

Before investing in a book, you should ask whether it’s really worth the effort. The answer depends on what you bring to the undertaking, To assist you in forming a preliminary judgment, we present a mythical conversation among three reasonably well-informed friends. The conversation concerns banking. It covers a few of the topics that we deal with in this book, but certainly not all of them. To us, this conversation raises more questions than it answers, rather than illuminating any specific issues. Its principal objective is to provide a test of how much students know about banking at the outset, and then perhaps to see how much they have learned in the course. So we recommend that this chapter be discussed in the first week of class to learn students’ views, and then perhaps again at the end of the course. We believe that it is difficult to formulate intelligent answers to the questions that are implicit in this conversation without understanding the issues examined in later chapters. But you be the judge.

The Conversation: 1991

The three friends are Alex Appleton, Beth Butterworth and Mike, the moderator. The time is early 1991 and the three friends are engaged in an animated debate about the recently publicized financial crises in the savings and loan (S&L) and banking industries.

Moderator: So, what do you people think? Will we ever really understand what happened to the American banking industry well enough to know what should be done?

Appleton: Well, I think banks and S&Ls were simply victims of the environment. We had an inverted yield curve—long rates were lower than short rates—for a while and this made it difficult for financial institutions to reap their normal profits from asset transformation; you know, I’ve never believed in the expectations hypothesis. It’s a theoretical nicety with no practical relevance. Of course, the increased interest rate volatility didn’t help. As if this weren’t enough, there was an enormous increase in competition, both domestic and international. These institutions must have felt like they were being squeezed by a powerful vise.

Moderator: And let’s not forget those myopic politicians who encouraged banks to take on significant LDC (loans to developing countries) exposure. Do you know how much bank capital was wiped out as a result of LDC writeoffs? It sure puts the European banks at a competitive advantage. Also, all of the deregulation and reducing capital requirements didn’t help either. By the way, Alex, I’ll give you another reason not to like the expectations hypothesis—it’s also wrong.

Appleton: I didn’t know that. Are you sure? In any case, it’s good to know you agree with me, Mike. But frankly, I’m surprised. Knowing how you and Beth feel about this, I thought I’d get more of an argument.

Moderator: Well, cheer up, Alex. My agreement with you is only partial. I agree that depository financial institutions faced a tough environment during the last 15 years or so. But I also think they could have managed their risks more intelligently. For example, they could have reduced the duration gaps in their asset and liability portfolios and made use of contemporary immunization techniques to hedge their interest rate risks. Like some of the investment banking houses, they could have been more innovative in brokerage activities, so that the resulting fee income would have made banks less dependent on the riskier asset transformation activities. Just look at the profits earned by some investment bankers who stripped Treasuries and sold zeros (pure discount bonds) like CATS (Certificates of Accrual on treasury Securities) and TIGRS (Treasury Investment Growth Receipts). No, Alex! The real story runs much deeper than your “passive victims of the environment” explanation. I think banks and S&Ls exploited the system and ripped off taxpayers.

Appleton: Mike, you’re paranoid.

Moderator: Am I really? More than 50 percent of the S&L failures involved management fraud.

Butterworth: It’s kind of amusing to listen to both of you, because neither of you is completely right. Mike, even though fraud was detected in more than 50 percent of failed S&Ls, I believe that the dollar losses due to fraud added up to less than 5 percent of the total dollar losses. So the fraud issue is a bit of a smokescreen. I think the real problem is that we designed a banking system in the 1930s and it’s outdated.

Moderator: I don’t see where you’re disagreeing with me, Beth. After all, isn’t it tautological to say that a system that allows itself to be exploited by depository institutions is outdated?

Butterworth: Not quite! My point is not that the system allowed itself to be exploited. Rather, the system encouraged depository institutions to do the things that they did. By and large, I don’t believe that banks and S&Ls did many things that were not in the interests of their shareholders. Rather than being the victim of exploitation by banks and S&Ls, the system provided the incentives for these institutions to engage in the activities you have termed “exploitation.” There’s a difference between crying foul because a thief breaks into your house while you’re away and crying foul after you have invited the thief into your house to carry away your possessions.

Moderator: We may be getting bogged down in semantics here. Could you be more specific, Beth?

Butterworth: Well, I’m referring to the distorted risk-taking and capital accumulation incentives provided by our system of governmental regulation. Risk-insensitive deposit insurance pricing gave endowed banks and S&Ls low-cost put options and created a monstrous moral hazard problem. Regulatory uncertainties artificially pushed up the cost of bank capital and, combined with declining charter values, really exacerbated the moral hazard problem. What we ended up with was a system totally lacking in any sort of incentive compatibility.

Appleton: Beth, most of what you are saying is totally incomprehensible to me. Didn’t you tell me the other day that you thought that implementing a risk-sensitive deposit insurance pricing scheme could be a real nightmare? So, why pick on the risk insensitivity of deposit insurance pricing as the culprit?

Butterworth: I still strongly believe what I said then, Alex. But that doesn’t contradict what I’m saying now. It’s kind of tricky to explain this, but…

Moderator: Excuse me, Beth, but I have to leave in a little while, so perhaps we can move on and talk about what can be done to improve the system. I read recently that the Treasury Department proposed to reform our banking system. It looked to me like there were some good ideas in that proposal. What do you think?

Butterworth: Well, Mike, it is an interesting proposal, but not everything in it is new. I like the part about regulatory consolidation and dismantling of the McFadden Act restrictions on nationwide branching. I’m not crazy about the elimination of Glass-Steagall—the Banking Act of 1933 that separated commercial and investment banking—because I think it continues to serve a constructive purpose.

Appleton: Frankly, I don’t think that the regulatory consolidation proposal goes far enough. I like Henry Gonzales’ proposal to consolidate all banking regulation in just two agencies a lot better on that score. I have idea why you are so enamored of Glass-Steagall, Beth. Doesn’t it make sense to level the playing field for banks and their competitors?

Butterworth: Alex, it’s not that I like Glass-Steagall per se. It’s just that if you’re going to eliminate it, you have to be careful about how you do it, and what you replace it with. That is where I think the Treasury proposal is lacking.

Moderator: But I thought that the proposal was careful to recommend a hierarchy of capital levels so that only the relatively well-capitalized banks could engage in many of the activities proscribed by Glass-Steagall.

Butterworth: I know, but that’s a long way from achieving what I’d like to see. I could explain, Mike, but you have to run.

Moderator (with a wry grin): I appreciate that, Beth. Talking about capital, you know I haven’t quite thought through the ramifications of the Treasury proposal in light of the BIS (Bank for International Settlements) capital guidelines that will become effective in 1992.

Appleton: That’s simple, Mike. The BIS stipulations are minimum levels, whereas the Treasury proposal gives banks choices above the BIS minimum....

Produkt-Details

• Erscheint lt. Verlag: 20.3.2007
• Sprache: englisch
• Themenwelt: Sachbuch/Ratgeber ► Beruf / Finanzen / Recht / Wirtschaft ► Geld / Bank / Börse
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung
• Themenwelt: Betriebswirtschaft / Management ► Spezielle Betriebswirtschaftslehre ► Bankbetriebslehre
• Themenwelt: Wirtschaft ► Volkswirtschaftslehre ► Mikroökonomie
• ISBN-10: 0-08-047681-3 / 0080476813
• ISBN-13: 978-0-08-047681-0 / 9780080476810