Bank Management

by Koch, Timothy W.; MacDonald, S. Scott

• ISBN13: 9780324289275
• ISBN10: 0324289278
• Edition: 6th
• Format: Hardcover
• Copyright: 2005-08-16
• Publisher: South-Western College Pub

Summary

Maximize your stockholders’ wealth with BANK MANAGEMENT! With an emphasis on how managers can implement strategies to maximize stockholders wealth by balancing the trade-off between banking risks and returns, this finance text demonstrates how risk management decisions in different areas affect each other and the overall profitability and risk of the institution. Learn by doing with an Excel template that allows you to practice cash flow analysis and bank performance analysis.

Table of Contents

PART I Overview of the Banking Industry and Regulation	1	(50)
The Changing Banking Environment	2	(49)
Goals and Functions of Bank Regulation	4	(1)
Ensure Safety and Soundness and Provide an Efficient and Competitive System	5	(6)
Maintaining Monetary Stability and the Integrity of the Payments System	11	(3)
Efficient and Competitive Financial System	14	(12)
Consumer Protection	26	(1)
Trends in Federal Legislation and Regulation	26	(4)
Banking Business Models	30	(3)
The Fundamental Forces of Change	33	(9)
Advances in Technology	42	(1)
Summary	43	(3)
Appendix	46	(5)
PART II Evaluating Bank Performance	51	(92)
Analyzing Bank Performance	52	(68)
Commercial Bank Financial Statements	54	(12)
The Relationship Between the Balance Sheet and Income Statement	66	(1)
The Return on Equity Model	67	(2)
Profitability Analysis	69	(5)
Managing Risk and Returns	74	(6)
Operational Risk	80	(2)
Evaluating Bank Performance: An Application	82	(9)
Maximizing the Market Value of Bank Equity	91	(4)
Financial Statement Manipulation	95	(3)
Summary	98	(5)
Appendix	103	(17)
Managing Noninterest Income and Noninterest Expense	120	(23)
Noninterest Income	122	(5)
Noninterest Expense	127	(4)
Which Lines of Business and Customers Are Profitable?	131	(5)
What Is the Appropriate Business Mix?	136	(2)
Strategies to Manage Noninterest Expense	138	(3)
Summary	141	(2)
PART III Managing Interest Rate Risk	143	(108)
Pricing Fixed-Income Securities	144	(22)
The Mathematics of Interest Rates	144	(2)
Future Value and Present Value: Multiple Payments	146	(3)
The Relationship Between Interest Rates and Option-Free Bond Prices	149	(4)
Duration and Price Volatility	153	(4)
Recent Innovations in the Valuation of Fixed-Income Securities and Total Return Analysis	157	(2)
Money Market Yields	159	(3)
Summary	162	(4)
Managing Interest Rate Risk: GAP and Earnings Sensitivity	166	(26)
Measuring Interest Rate Risk with GAP	167	(1)
Traditional Static GAP Analysis	168	(11)
Earnings-Sensitivity Analysis	179	(5)
Income Statement GAP	184	(2)
Managing the GAP and Earnings-Sensitivity Risk	186	(1)
Summary	186	(6)
Managing Interest Rate Risk: Duration Gap and Market Value of Equity	192	(18)
Measuring Interest Rate Risk With Duration Gap	193	(6)
Economic Value of Equity Sensitivity Analysis	199	(4)
Earnings-Sensitivity Analysis versus EVE-Sensitivity Analysis: Which Model Is Better?	203	(1)
A Critique of Strategies to Manage Earnings and Economic Value of Equity Sensitivity	204	(3)
Summary	207	(3)
Using Derivatives to Manage Interest Rate Risk	210	(41)
Characteristics of Financial Futures	211	(5)
Speculation versus Hedging	216	(6)
Microhedging Applications	222	(2)
Macrohedging Applications	224	(3)
Using Forward Rate Agreements to Manage Rate Risk	227	(1)
Basic Interest Rate Swaps as a Risk Management Tool	228	(5)
Interest Rate Caps and Floors	233	(10)
Summary	243	(8)
PART IV Managing the Cost of Funds, Bank Capital, and Liquidity	251	(92)
Funding the Bank and Managing Liquidity	252	(58)
The Relationship Between Liquidity Requirements, Cash, and Funding Sources	253	(4)
Characteristics of Retail-Type Deposits	257	(7)
Characteristics of Large Wholesale-Type Liabilities	264	(7)
Electronic Money	271	(2)
Check 21	273	(3)
Measuring the Cost of Funds	276	(5)
Funding Sources and Banking Risks	281	(2)
Holding Liquid Assets	283	(1)
Reserve Balances at the Federal Reserve Bank	284	(3)
Meeting Legal Reserve Requirements	287	(6)
Liquidity Planning	293	(6)
Traditional Aggregate Measures of Liquidity Risk	299	(5)
Summary	304	(6)
The Effective Use of Capital	310	(33)
Why Worry About Bank Capital?	310	(2)
Risk-Based Capital Standards	312	(5)
What Constitutes Bank Capital?	317	(3)
FDICIA and Bank Capital Standards	320	(3)
What Is the Function of Bank Capital?	323	(2)
How Much Capital is Adequate?	325	(1)
The Effect of Capital Requirements on Bank Operating Policies	326	(4)
Characteristics of External Capital Sources	330	(1)
Capital Planning	331	(2)
Federal Deposit Insurance	333	(6)
Summary	339	(4)
PART V Extending Credit to Businesses and Individuals	343	(98)
Overview of Credit Policy and Loan Characteristics	344	(30)
Recent Trends in Loan Growth and Quality	345	(6)
Measuring Aggregate Asset Quality	351	(2)
Trends in Competition for Loan Business	353	(1)
The Credit Process	353	(6)
Characteristics of Different Types of Loans	359	(12)
Summary	371	(3)
Evaluating Commercial Loan Requests	374	(40)
Fundamental Credit Issues	375	(3)
Evaluating Credit Requests: A Four-Part Process	378	(16)
Credit Analysis Application: Wade's Office Furniture	394	(15)
Appendix	409	(5)
Evaluating Consumer Loans	414	(27)
Types of Consumer Loans	416	(5)
Subprime Loans	421	(1)
Consumer Credit Regulations	422	(6)
Credit Analysis	428	(8)
Recent Risk and Return Characteristics of Consumer Loans	436	(2)
Summary	438	(3)
PART VI Managing the Investment Portfolio and Special Topics	441	(73)
Managing the Investment Portfolio	442	(50)
Dealer Operations and the Securities Trading Account	443	(1)
Objectives of the Investment Portfolio	444	(2)
Composition of the Investment Portfolio	446	(2)
Characteristics of Taxable Securities	448	(8)
Prepayment Risk on Mortgage-Backed Securities	456	(7)
Characteristics of Municipal Securities	463	(4)
Establishing Investment Policy Guidelines	467	(1)
Active Investment Strategies	468	(1)
The Maturity or Duration Choice for Long-Term Securities	468	(5)
The Impact of Interest Rates on the Value of Securities with Embedded Options	473	(8)
Comparative Yields on Taxable versus Tax-Exempt Securities	481	(4)
The Impact of the Tax Reform Act of 1986	485	(1)
Strategies Underlying Security Swaps	486	(2)
Summary	488	(4)
Global Banking Activities	492	(22)
Global Banking Participants	492	(6)
The European Community	498	(1)
Universal Banking Model	498	(3)
Organizational Structure of U.S. Banks	501	(2)
International Financial Markets	503	(1)
International Lending	504	(4)
Foreign Exchange Activities	508	(4)
Summary	512	(2)
References	514	(3)
Glossary	517	(28)
Index	545