Banking And The Management Of Financial Institutions201

Preview 201

The Bank Balance Sheet 201

Liabilities 201

Assets 204

Basic Banking 205

General Principles of Bank Management 208

Liquidity Management and the Role of Reserves 208

Asset Management 211

Liability Management 212

Capital Adequacy Management 213

Application Strategies for Managing Bank Capital 215

Application Did the Capital Crunch Cause a Credit Crunch in the

Early 1990s? 216

Managing Credit Risk 217

Screening and Monitoring 217

Long-Term Customer Relationships 218

Loan Commitments 219

Collateral and Compensating Balances 219

Credit Rationing 220

Managing Interest-Rate Risk 220

Gap and Duration Analysis 221

Application Strategies for Managing Interest-Rate Risk 222

Off-Balance-Sheet Activities 223

Loan Sales 223

Generation of Fee Income 223

Trading Activities and Risk Management Techniques 224

Box 1 Global: Barings, Daiwa, Sumitomo, and Allied Irish:

Rogue Traders and the Principal-Agent Problem 225

Summary, Key Terms, Questions and Problems, and Web Exercises 226

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