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• Cover image
• Title page
• Table of Contents
• Copyright
• Dedication
• Preface
• Acknowledgments
• About the Authors
• PART I: THE BACKGROUND
• A Friendly Conversation
• Introduction
• The Conversation: 1991
• Follow-Up to the Conversation: 2007
• Chapter 1: Basic Concepts
• Introduction
• Risk Preferences
• Diversification
• Riskless Arbitrage
• Options
• Market Efficiency
• Market Completeness
• Asymmetric Information and Signaling
• Agency and Moral Hazard
• Time Consistency
• Nash Equilibrium
• Revision of Beliefs and Bayes Rule
• PART II: WHAT IS FINANCIAL INTERMEDIATION?
• Chapter 2: The Nature and Variety of Financial Intermediation
• Glossary of Terms
• Introduction
• What Are Financial Intermediaries?
• The Variety of Financial Intermediaries
• Depository Financial Intermediaries
• Commercial Banks
• Thrifts
• Credit Unions
• Nondepository Intermediaries
• The Role of the Government
• Financial Intermediaries on the Periphery
• Conclusion
• Appendix 2.1 Measurement Distortions and the Balance Sheet
• Appendix 2.2 Guide to Federal Reserve Regulations
• Chapter 3: The What, How, and Why of Financial Intermediaries
• Glossary of Terms
• Introduction
• Fractional Reserve Banking and the Goldsmith Anecdote
• The Evolution of the Primitive Goldsmith Into a Bank
• A Model of Banks and Regulation
• The Macroeconomic Implications of Fractional Reserve Banking: The Fixed Coefficient Model
• Large Financial Intermediaries
• How Banks Can Help to Make Nonbank Financial Contracting More Efficient
• The Empirical Evidence: Banks Are Special
• Ownership Structure of Depository Financial Institutions
• The Borrower’s Choice of Finance Source
• Conclusion
• Appendix 3.1 The Formal Analysis of Large Intermediaries
• PART III: MAJOR “ON-BALANCE-SHEET” RISKS IN BANKING
• Chapter 4: Major Risks Faced by Banks
• Glossary of Terms
• Introduction
• The Source of Business Risk
• Credit, Interest Rate, and Liquidity Risks
• The Term Structure of Interest Rates
• Duration
• Convexity
• Interest Rate Risk
• Liquidity Risk
• Conclusion
• Case Study Eggleston State Bank
• Appendix 4.1 Dissipation of Withdrawal Risk Through Diversification
• Appendix 4.2 Lender-of-Last-Resort Moral Hazard
• Chapter 5: Spot Lending
• Glossary of Terms
• Introduction
• Description of Bank Assets
• Types of Bank Loans
• What Is Lending?
• Loans Versus Securities
• Structure of Loan Agreements
• Informational Problems in Loan Contracts and the Importance of Loan Performance
• Credit Analysis: The Factors
• Sources of Credit Information
• Analysis of Financial Statements
• Loan Covenants
• Conclusion
• Case Study Indiana Building Supplies, Inc.
• Appendix 5.1 Trends in Credit Analysis
• Chapter 6: Further Issues in Bank Lending
• Glossary of Terms
• Introduction
• Loan Pricing and Profit Margins: General Remarks
• Credit Rationing
• Bank Capital and Credit Rationing
• The Spot Lending Decision
• Long-Term Bank-Borrower Relationships
• Long-Term Relationships and Moral Hazard
• Loan Restructuring and Default
• Conclusion
• Case Study Zeus Steel, Inc.31
• Chapter 7: Special Topics in Credit: Syndicated Loans, Loan Sales, and Project Finance
• Glossary of Terms
• Introduction
• Syndicated Lending
• Project Finance
• Conclusion
• PART IV: OFF THE BANK’S BALANCE SHEET
• Chapter 8: Off-Balance Sheet Banking and Contingent Claims Products
• Glossary of Terms
• Introduction
• Loan Commitments: A Description
• Rationale for Loan Commitments
• Pricing of Loan Commitments
• Loan Commitments and Monetary Policy
• Other Contingent Claims: Letters of Credit
• Other Contingent Claims: Swaps
• Other Contingent Claims: Credit Derivatives
• Risks for Banks in Contingent Claims
• Regulatory Issues
• Conclusion
• Case Study Youngstown Bank
• Chapter 9: Securitization
• Glossary of Terms
• Introduction
• Preliminary Remarks on the Economic Motivation for Securitization and Loan Sales
• Different Types of Securitization Contracts
• Going Beyond Preliminary Remarks on Economic Motivation: The “Why,” “What,” and “How Much Is Enough” of Securitization
• Strategic Issues for a Financial Institution Involved in Securitization
• Comparison of Loan Sales and Loan Securitization
• Conclusion
• Case Study Lone Star Bank
• PART V: THE DEPOSIT CONTRACT
• Chapter 10: The Deposit Contract and Insurance
• Glossary of Terms
• Introduction
• The Deposit Contract
• Liability Management
• Liability Mix
• Deposit Insurance
• The Great Deposit Insurance Debacle
• Conclusion
• PART VI: BANK REGULATION
• Chapter 11: Objectives of Bank Regulation
• Glossary of Terms
• Introduction
• The Essence of Bank Regulation
• The Agencies of Bank Regulation
• Market Structure and Competition
• The Basel I Capital Accord
• Safety and Soundness Regulation: Bank Portfolio Restrictions
• Consumer Protection, Credit Allocation, and Monetary Control Regulation
• Conclusion
• Chapter 12: Milestones in Banking Legislation and Regulatory Reform
• Glossary of Terms
• Introduction
• Milestones of Banking Legislation
• Problems of Bank Regulation
• The 1991 FDICIA and Beyond
• Liquidity Constraints, Capital Requirements, and Monetary Policy
• The Basel II Capital Accord
• The Debate Over Capital Requirements
• Conclusion
• PART VII: OVERALL MANAGEMENT OF THE BANK
• Chapter 13: Management of Risks and Opportunities in Banking
• Glossary of Terms
• Introduction
• Opportunities and Risks in Banking
• Day-to-Day Management
• Crisis Management and Enterprise Risk Management
• Strategic Planning
• Case Study
• Conclusion
• PART VIII: CORPORATE CONTROL AND GOVERNANCE
• Chapter 14: Mergers and Acquisitions
• Glossary of Terms
• Introduction
• Recent Trends in Mergers and Acquisitions in Banking
• Corporate Control Issues
• Mergers in Banking
• Hostile Takeovers in Banking
• Conclusion
• Chapter 15: Investment Banking
• Glossary of Terms
• Introduction
• What Investment Banks Do
• Risk Management, Structured Finance, and Investment Banks
• Conclusion
• Appendix 15.19
• PART IX: THE FUTURE
• Chapter 16: The Future
• Glossary of Terms
• Introduction
• Future Opportunities for Banks: Expanded Role for Relationship Banking and the Implications for Universal Banking, Financial Innovation, and Globalization
• Risk Management by Banks
• The Basel Initiative and Future Capital Accords
• Conclusion
• Index