Contemporary Financial Intermediation
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Table of contents
- Copyright Pageiv
- Dedication Pagev
- Abbreviated Contentsvii
- Extended Contentsix
- Prefacexv
- Acknowledgmentsxix
- About the Authorsxxi
- Part I: The Background1
- A Friendly Conversation3
- Introduction3
- The Conversation: 19913
- Follow-Up to the Conversation: 200711
- Chapter 1: Basic Concepts13
- Introduction13
- Risk Preferences13
- Diversification16
- Riskless Arbitrage19
- Options20
- Market Efficiency21
- Market Completeness22
- Asymmetric Information and Signaling24
- Agency and Moral Hazard29
- Time Consistency32
- Nash Equilibrium34
- Revision of Beliefs and Bayes Rule35
- References37
- Part II: What is Financial Intermediation?39
- Chapter 2: The Nature and Variety of Financial Intermediation41
- Introduction42
- What Are Financial Intermediaries?43
- The Variety of Financial Intermediaries50
- Depository Financial Intermediaries53
- Nondepository Intermediaries61
- The Role of the Government72
- Financial Intermediaries on the Periphery72
- Conclusion75
- Review Questions76
- Appendix 2.1: Measurement Distortions and the Balance Sheet76
- Appendix 2.2: Guide to Federal Reserve Regulations78
- References88
- Chapter 3: The What, How, and Why of Financial Intermediaries91
- Introduction92
- Fractional Reserve Banking and the Goldsmith Anecdote93
- A Model of Banks and Regulation97
- The Macroeconomic Implications of Fractional Reserve Banking: The Fixed Coefficient Model103
- Large Financial Intermediaries107
- How Banks Can Help to Make Nonbank Financial Contracting More Efficient109
- The Empirical Evidence: Banks Are Special110
- Ownership Structure of Depository Financial Institutions112
- The Borrower’s Choice of Finance Source115
- Conclusion117
- Review Questions119
- Appendix 3.1: The Formal Analysis of Large Intermediaries119
- References123
- Part III: Major ‘‘On-Balance-Sheet’’ Risks in Banking125
- Chapter 4: Major Risks Faced by Banks127
- Introduction127
- The Source of Business Risk128
- Credit, Interest Rate, and Liquidity Risks129
- The Term Structure of Interest Rates132
- Duration141
- Convexity146
- Interest Rate Risk148
- Liquidity Risk151
- Conclusion157
- Case Study: Eggleston State Bank158
- Review Questions162
- Appendix 4.1: Dissipation of Withdrawal Risk Through Diversification164
- Appendix 4.2: Lender-of-Last-Resort Moral Hazard164
- References166
- Chapter 5: Spot Lending169
- Introduction171
- Description of Bank Assets171
- What Is Lending?177
- Loans Versus Securities179
- Structure of Loan Agreements180
- Informational Problems in Loan Contracts and the Importance of Loan Performance182
- Credit Analysis: The Factors185
- Sources of Credit Information206
- Analysis of Financial Statements208
- Loan Covenants212
- Conclusion215
- Case Study: Indiana Building Supplies, Inc.216
- Review Questions219
- Appendix 5.1: Trends in Credit Analysis222
- References223
- Chapter 6: Further Issues in Bank Lending227
- Introduction228
- Loan Pricing and Profit Margins: General Remarks228
- Credit Rationing238
- The Spot Lending Decision246
- Long-Term Bank-Borrower Relationships248
- Loan Restructuring and Default255
- Conclusion265
- Case Study: Zeus Steel, Inc.266
- Review Questions273
- References276
- Chapter 7: Special Topics in Credit: Syndicated Loans, Loan Sales, and Project Finance279
- Introduction279
- Syndicated Lending280
- Project Finance287
- Conclusion290
- Review Questions290
- References290
- Part IV: Off the Bank’s Balance Sheet293
- Chapter 8: Off-Balance Sheet Banking and Contingent Claims Products295
- Introduction296
- Loan Commitments: A Description299
- Rationale for Loan Commitments304
- Pricing of Loan Commitments315
- The Differences Between Loan Commitments and Put Options317
- Loan Commitments and Monetary Policy320
- Other Contingent Claims: Letters of Credit321
- Other Contingent Claims: Swaps323
- Other Contingent Claims: Credit Derivatives329
- Risks for Banks in Contingent Claims330
- Regulatory Issues334
- Conclusion335
- Case Study: Youngstown Bank336
- Review Questions341
- References342
- Chapter 9: Securitization345
- Introduction346
- Preliminary Remarks on the Economic Motivation for Securitization and Loan Sales348
- Different Types of Securitization Contracts351
- Going Beyond Preliminary Remarks on Economic Motivation: The ‘‘Why,’’ ‘‘What,’’ and363
- Strategic Issues for a Financial Institution Involved in Securitization383
- Comparison of Loan Sales and Loan Securitization386
- Conclusion386
- Case Study: Lone Star Bank387
- Review Questions391
- References393
- Part V: The Deposit Contract395
- Chapter 10: The Deposit Contract and Insurance397
- Introduction398
- The Deposit Contract399
- Liability Management407
- Deposit Insurance409
- The Great Deposit Insurance Debacle431
- Conclusion435
- Review Questions435
- References436
- Part VI: Bank Regulation439
- Chapter 11: Objectives of Bank Regulation441
- Introduction442
- The Essence of Bank Regulation443
- The Agencies of Bank Regulation446
- Market Structure and Competition451
- The Basel I Capital Accord459
- Safety and Soundness Regulation: Bank Portfolio Restrictions466
- Consumer Protection, Credit Allocation, and Monetary Control Regulation467
- Conclusion475
- Review Questions475
- References476
- Chapter 12: Milestones in Banking Legislation and Regulatory Reform479
- Introduction480
- Milestones of Banking Legislation480
- Problems of Bank Regulation489
- The 1991 FDICIA and Beyond497
- Liquidity Constraints, Capital Requirements, and Monetary Policy504
- The Basel II Capital Accord506
- The Debate Over Capital Requirements512
- Conclusion515
- Review Questions515
- References516
- Part VII: Overall Management of the Bank519
- Chapter 13: Management of Risks and Opportunities in Banking521
- Introduction522
- Opportunities and Risks in Banking524
- Day-to-Day Management528
- Crisis Management and Enterprise Risk Management545
- Strategic Planning546
- Case Study554
- Conclusion556
- Review Questions556
- References556
- Part VIII: Corporate Control and Governance559
- Chapter 14: Mergers and Acquisitions561
- Introduction562
- Recent Trends in Mergers and Acquisitions in Banking562
- Corporate Control Issues563
- Mergers in Banking572
- Hostile Takeovers in Banking577
- Conclusion582
- Review Questions582
- References583
- Chapter 15: Investment Banking587
- Introduction587
- What Investment Banks Do588
- Risk Management, Structured Finance, and Investment Banks598
- Conclusion602
- Appendix 15.1602
- References606
- Part IX: the Future609
- Chapter 16: The Future611
- Introduction611
- Future Opportunities for Banks: Expanded Role for Relationship Banking and the Implications for Univ612
- Risk Management by Banks614
- The Basel Initiative and Future Capital Accords614
- Conclusion618
- Review Questions618
- References618
- Index619
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.
"This book is the perfect liasion between the microeconomics realm of information economics and the real world of banking and financial intermediation. It supplies a healthy dose of microeconomic theory to fully understand the underlying features of the most common financial instruments used in modern banking practice, all explained thoroughly with down to earth narratives and doable math/game theoretic instruments. It makes a wonderful preview before going on with Freixas text, or at least as its companion."
--Quote referring to first edition from Enrique Fernandez on amazon.com
* Completely undated edition of a classic banking text
* Online solutions manual, instructor resources, and ppt slides available to instructors on publisher's website
* Authored by experts on financial intermediation theory, only textbook that takes this approach situating banks within microeconomic theory
"This book is the perfect liasion between the microeconomics realm of information economics and the real world of banking and financial intermediation. It supplies a healthy dose of microeconomic theory to fully understand the underlying features of the most common financial instruments used in modern banking practice, all explained thoroughly with down to earth narratives and doable math/game theoretic instruments. It makes a wonderful preview before going on with Freixas text, or at least as its companion."
--Quote referring to first edition from Enrique Fernandez on amazon.com
* Completely undated edition of a classic banking text
* Online solutions manual, instructor resources, and ppt slides available to instructors on publisher's website
* Authored by experts on financial intermediation theory, only textbook that takes this approach situating banks within microeconomic theory