Bank Management

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  • Edition: 7th
  • Format: Hardcover
  • Copyright: 2009-07-24
  • Publisher: South-Western College Pub
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Closely examine the impact of today's changing, competitive environment on commercial banks and banking services, as well as the entire financial services industry, with Koch/MacDonald's BANK MANAGEMENT, 7E. This new edition reflects the latest changes and developments, from complete regulatory updates to details of the many programs evolving amidst today's financial crises. Whether your students are practicing or future professionals, they will gain a better understanding of the risks associated with loans and securities, the process of securitization, excessive leverage and inadequate liquidity. Core business models demonstrate value core operating earnings versus trading as well as price- and volume-driven profits. The book provides a framework for developing effective strategies that ensure a proper balance between management's profit targets and allowable risk taking. The book's unique approach to understanding commercial bank management from a decision-making perspective presents actual bank managers making strong financial decisions. Your students clearly see how decisions in one area affect performance and opportunities in other areas. Students gain a solid foundation in the key issues confronting managers today as they become familiar with basic financial models used to formulate decisions and better understand the strengths and weaknesses of data analysis. With the help of this latest edition, students develop the logical thought processes needed to achieve strong financial and management results.

Table of Contents

Banking and the Financial Services Industry
Credit Crisis of 2007-2009
Impact on Banks and the Banking Environment
How Do Banks Differ? Trends in the Structure of U.S
Organizational Structure and Financial Services Business Models
S-Corporation Banks
Financial Services Business Models
Transactions Banking versus Relationship Business Models
Universal Banking
Different Channels for Delivering Banking Services
Branch Banking
Automated Teller Machines
Internet (Online) Banking
Call Centers
Mobile Banking
Government Policies and Regulation
Historical Bank Regulation
Products and Services
Goals and Functions of Depository Institution Regulation
Ensure Safety and Soundness and Provide an Efficient and Competitive System
Supervision and Examination
New Charters
Federal Deposit Insurance
Product Restrictions: Depository Institutions versus Nondepository Institutions
Shortcomings of Restrictive Bank Regulation
Maintaining Monetary Stability and the Integrity of the Payments System
The Role of the Central Bank in the Economy: The Federal Reserve System
Monetary Policy
The Federal Reserve's Crisis Management Tools
The Role of Depository Institutions in the Economy
Efficient and Competitive Financial System
Consumer Protection
Trends in Federal Legislation and Regulation
Key Federal Legislation: 1970-1993
Key Federal Legislation: 1994-2000
Key Federal Legislation: 2001-2006
Key Federal Legislation: 2007-2008
Current Unresolved Regulatory Issues
Capital Adequacy
Regulatory Reform
Analyzing Bank Performance
Commercial Bank Financial Statements
The Balance Sheet
The Income Statement
The Relationship Between the Balance Sheet and Income Statement
The Return on Equity Model
Profitability Analysis
Expense Ratio and Asset Utilization
Managing Risk and Returns
Credit Risk
Liquidity Risk
Market Risk
Operational Risk
Legal and Reputation Risk
Capital or Solvency Risk
Off-Balance Sheet Risk
Evaluating Bank Performance: An Application
Profitability Analysis for PNC in 2007
Risk Analysis for PNC in 2007
PNC's Profitability versus Risk: 2003-2007
Maximizing the Market Value of Bank Equity
Camels Ratings
Performance Characteristics of Banks by Size
Financial Statement Manipulation
Off-Balance Sheet Activities
Managing Noninterest Income and Noninterest Expense
Noninterest Income
Deposit Service Fees
Noninterest Expense
Key Ratios
Which Lines of Business and Customers are Profitable? Line-Of-Business Profitability Analysis
Customer Profitability Analysis
Aggregate Profitability Results from Customer Profitability Analysis
What is the Appropriate Business Mix? Strategies for Managing Noninterest Expense
Cost Management Strategies
Revenue Enhancement
Contribution Growth
The Performance of Nontraditional Banking Companies
The Financial Performance of Goldman Sachs
Goldman Sachs's Income Statement
Goldman Sachs's Balance Sheet
Key Performance Ratios
Risks Faced by Goldman Sachs
Goldman's Risk Profile
The Financial Performance of Mutual of Omaha Bank
Mutual of Omaha Bank's Risk Profile
The Financial Performance of BMW Financial Services and BMW Bank of North America
BMW Bank's Risk Profile
Pricing Fixed-Income Securities
The Mathematics of Interest Rates
Future Value and Present Value: Single Payment
Future Value and Present Value: Multiple Payments
The Relationship Between Interest Rates and Option-Free Bond Prices
The Size of Coupon Influences Bond Price Sensitivity
Duration and Price Volatility
Duration as an Elasticity Measure
Measuring Duration
Duration of a Zero Coupon Bond
Comparative Price Sensitivity
Recent Innovations in the Valuation of Fixed-Income Securities and Total Return Analysis
Total Return Analysis
Valuing Bonds as a Package of Cash Flows
Money Market Yields
Interest-Bearing Loans with Maturities of One Year or Less
360-Day versus 365-Day Yields
Discount Yields
Yields on Single-Payment, Interest-Bearing Securities
Managing Interest Rate Risk: GAP and Earnings Sensitivity
Measuring Interest Rate Risk with GAP
Traditional Static GAP Analysis
What Determines Rate Sensitivity? Factors Affecting Net Interest Income
Rate, Volume, and Mix Analysis
Rate Sensitivity Reports
Strengths and Weaknesses of Static GAP Analysis
Earnings Sensitivity Analysis
Exercise of Embedded Options in Assets and Liabilities
Different Interest Rates Change by Different Amounts at Different Times
Earnings Sensitivity Analysis: An Example
Income Statement GAP
Managing the GAP and Earnings Sensitivity Risk
Managing Interest Rate Risk: Economic Value of Equity
Measuring Interest Rate Risk with Duration Gap
Duration, Modified Duration, and Effective Duration
Duration Gap Model
A Duration Application for Banks
Economic Value of Equity Sensitivity Analysis
EVE Sensitivity Analysis: An Example
Earnings Sensitivity Analysis versus EVE Sensitivity Analysis: Which Model Is Better? Strengths and Weaknesses: DGAP and EVE Sensitivity Analysis
A Critique of Strategies for Managing Earnings and Economic Value of Equity Sensitivity
GAP and DGAP Management Strategies: What Are Your Bets? Interest Risk Management: An Example
Yield Curve Strategies
Using Derivatives to Manage Interest Rate Risk
Characteristics of Financial Futures
A Brief Example
Types of Futures Traders
The Mechanics of Futures Trading
An Example: 90-Day Eurodollar Time Deposit Futures
Expectations Embedded in Futures Rates
Daily Marking-to-Market
Speculation versus Hedging
Speculators Take On Risk to Earn Speculative Profits
Hedgers Take Positions to Avoid or Reduce Risk
A Long Hedge: Reduce Risk Associated with a Decrease in Interest Rates
A Short Hedge: Reduce Risk Associated with an Increase in Interest Rates
Change in the Basis
Basis Risk and Cross Hedging
Microhedging Applications
Creating a Synthetic Liability with a Short Hedge
The Mechanics of Applying a Microhedge
Macrohedging Applications
Hedging: GAP or Earnings Sensitivity
Hedging: Duration Gap and EVE Sensitivity
Accounting Requirements and Tax Implications
Using Forward Rate Agreements to Manage Rate Risk
Forward Rate Agreements: An Example
Potential Problems with FRAs
Basic Interest Rate Swaps as a Risk Management Tool
Interest Rate Caps and Floors
Buying an Interest Rate Cap
Buying an Interest Rate Floor
Interest Rate Collar and Reverse Collar
Protecting Against Falling Interest Rates
Strategy: Use a Basic Interest Rate Swap; Pay Floating and Receive Fixed
Strategy: Buy a Floor on the Floating Rate
Strategy: Buy a Reverse Collar; Sell a Cap and Buy a Floor on the Floating Rate
Protecting Against Rising Interest Rates
Strategy: Use a Basic Interest Rate Swap; Pay Fixed and Receive Floating
Strategy: Buy a Cap on the Floating Rate
Strategy: Buy a Collar
Funding the Bank
The Relationship Between Liquidity Requirements, Cash, and Funding Sources
Recent Trends in Bank Funding Sources
Characteristics of Retail-Type Deposits
Transactions Accounts
Nontransactional Accounts
Estimating the Cost of Deposit Accounts
Calculating the Average Net Cost of Deposit Accounts
Characteristics of Large Wholesale Liabilities
Jumbo CDs (CDs)
Individual Retirement Accounts
Foreign Office Deposits
Borrowing Immediately Available Funds
Borrowing from the Federal Reserve
Other Borrowing from the Federal Reserve
Federal Home Loan Bank Advances
Electronic Money
Check 21 Measuring the Cost of Funds
The Average Historical Cost of Funds
The Marginal Cost of Funds
Costs of Independent Sources of Funds
Weighted Marginal Cost of Total Funds
Marginal Cost Analysis: An Application
Funding Sources and Banking Risks
Funding Sources: Liquidity Risk
Funding Sources: Interest Rate Risk
Funding Sources: Credit and Capital Risk
Managing Liquidity
Meeting Liquidity Needs
Holding Liquid Assets
Borrowing Liquid Assets
Objectives of Cash Management
Reserve Balances at the Federal Reserve Bank
Required Reserves and Monetary Policy
The Impact of Sweep Accounts on Required Reserve Balances
Meeting Legal Reserve Requirements
Historical Problems with Reserve Requirements
Lagged Reserve Accounting
An Application: Reserve Calculation Under LRA
Correspondent Banking Services
Liquidity Planning
Short-Term Liquidity Planning
Managing Float
Liquidity versus Profitability
The Relationship Between Liquidity, Credit Risk, and Interest Rate Risk
Traditional Aggregate Measures of Liquidity Risk
Asset Liquidity Measures
Liability Liquidity Measures
Longer-Term Liquidity Planning
Contingency Plans
Considerations in the Selection of Liquidity Sources
The Effective Use of Capital
Why Worry about Bank Capital? Risk-Based Capital Standards
The 1986 Basel Agreement
Risk-Based Elements of Basel I
What Constitutes Bank Capital? Tier 3 Capital Requirements for Market Risk under Basel I
Basel II Capital Standards
Weaknesses of the Risk-Based Capital Standards
What is the Function of Bank Capital? How Much Capital is Adequate? The Effect of Capital Requirements on Bank Operating Policies
Limiting Asset Growth
Changing the Capital Mix
Changing Asset Composition
Pricing Policies
Shrinking the Bank
Characteristics of External Capital Sources
Subordinated Debt
Common Stock
Preferred Stock
Trust preferred Stock
TARP Capital Purchase Program
Leasing Arrangements
Capital Planning
Depository Institution Capital Standards
Federal Deposit Insurance
FDIC Insurance Assessment Rates
Problems with Deposit Insurance
Weakness of the Current Risk-Based Deposit Insurance System
Overview of Credit Policy and Loan Characteristics
Recent Trends in Loan Growth and Quality
Measuring Aggregate Asset Quality
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