Uyemura Dennis G., Deventer Donald R. Van. Financial Risk Management in Banking: The Theory & Application of Asset & Liability Management

McGraw-Hill, 1993. — 379 p. — ISBN: 1557383537.What Is Asset and Liability Management?
The Risk and Return Tradeoff in ALM.
The Goal of ALM.
Types of Risk.
Which Risks Cause Banks to Fail?
Financial Organization Structure: Who Does ALM?
The ALM Process.
The Characteristics of a Successful Asset and Liability Manager.
Take-Home Messages of This Book.The Nature of Risk, Return, and Performance Measurement.
What Is Risk?
What Is Return?
Shareholder Value Added.
Case Study on Profitability Measures.
Distinction Between SVA and Portfolio ROE.Appendix 2A: Detailed Calculation of SVA Cash Flows.
Capital Regulation.
Foundations of Banking Safety and Soundness.
Capital Regulation Replaces Regulation Q.
Primary Capital: A Prescription for Higher Risk.
The Desire to Level the International Playing Field.
Risk-Based Capital: Salvation or Panacea?
Risk-Based Capital: Illustrative Example.
Shortcomings of Risk-Based Capital.
Consequences of RBC Standards.
Administering the RBC Standards.Using Market Signals in Loan Pricing and Capital Allocations.
One Fundamental Problem with Banking.
Use of Market Signals in Capital Management.
Objections to and Disadvantages of Using Market Capital Signals.
An Alternative Approach for Market Capital.
Capital Allocations.
Some Observations on the Standard Deviation Method.
Establishing a Hurdle Rate on Economic Capital.
Access to New Capital.
Issues in Implementing Market Capital Measures.
How Not to Implement a Market Approach.Appendix 4A: Comments on the Cost of Capital.
Interest Rate Risk Overview.
Target Accounts: An Example of Multidimensionality.
Case Study on Interest Rate Risk Management: The Problem.
Discussion of Case Study Results.
The Traditional Priorities of Some Important Constituencies.
The Bond Analogies.
A Review of All Possible Interest Rate Risk Strategies.
Interest Rate Risk and the Cost of Bankruptcy.
The Interest Rate Risk “Safety Zone”.Appendix 5A: Is Interest Rate Risk Diversifiable?
Appendix 5B: The Relationship Between the Interest Rate Volatility of Net Interest Income and the Market Value of Equity.
Appendix 5C: Derivation of the Hedging Conditions for the Interest Rate Risk Target Accounts.
5C.1 Equations for the Market Value of Equity Target.
5C.2 Equations for the Economic Equity Ratio Target.
5C.3 Equations for the Net Interest Income Target.
Interest Rate Risk Mismatching and Hedging.
Introduction to the Yield Curve.
Example Calculation of Implied Forward Rates.
Interest Rate Mismatching Case Study.
Criteria for Interest Rate Mismatching.
To Mismatch or Not to Mismatch?
Hedging Balance Sheet Mismatches.
Hedging with Financial Futures.
Effects of a Futures Hedge on the Bank’s Financial Results.
Illustrating a Hedge Analysis at an ALCO Meeting.
Hedge Simulation with Bank Forecast Higher than Implied Forward Rates.
Historical Simulation Using Actual Futures and Spot Rates.
A Comment on Evaluating Hedge Performance and “Back Seat” Drivers.Appendix 6A: Detailed Results of Historical Futures Analyzes.
Interest Rate Risk Analyzes: Gap Analysis and Simulation Models.
Objectives of Interest Rate Risk Analytical Techniques.
Gap Analysis.
Shortfalls of Gap Analysis.
Uses for Gap Analysis.
Simulation Modeling: The Brute Force Approach.
A Simulation Model Specification for the Case Study Example.
The Concept of “Securities” in Simulation Models.
Specifications for Forecast Assumptions.
Solving the Model.
Portfolios as “Tractors”.
Displaying the Simulation Results.
A Look Inside the Solved Model.
Some Comments on Data Feeds and Interfaces.
On Developing In-House Simulation Software.Appendix 7A: Some Thoughts on Implementing and Using Simulation Software.
Interest Rate Risk Analyzes: Duration.
Introducing Interest Rate Elasticity: Duration Incognito.
Duration Calculations Made Easy.
From Duration to Interest Rate Elasticity.
Application of IRE Analysis to Case Study Example.
“HELP! I Didn’t Understand the Duration/IRE Equations!”.Appendix 8A: Duration Intuition and Bond Immunization.
Appendix 8B: Mathematical Derivation of the IRE Equation.
Interest Rate Risk Characteristics of Bank Products.
Prime-Based Loans: An Example of Short-Term Spread Risk.
The Money Market Deposit Account.
The Need for a “Generic” Long-Term Tractor in ALM.
Demand Deposits.
Cash and Due From Bank Balances.
Mortgage Loans.
Incorporating Prepayment Risk into ALM Analyzes.
Other Option Features of Bank Products.Appendix 9A: A Primer on Option Pricing.
Credit Risk and Other Risk Factors.
The Effects of Asset Quality on Bank Borrowing Spreads.
Credit Risk and Shareholder Value.
Diversification of Credit Risk.
Credit Risk Portfolio Management.
Measuring the Diversification of the Loan Portfolio.
Collateral and Credit Risk.
Stock Market Risk.
Foreign Exchange Risk.
Measuring Foreign Exchange Risk.Appendix 10A: An Options Theory Approach to the Value of Bank Debt and Equity.
Appendix 10B: Pricing Risky Loans and the Bank’s Own Cost of Funds.
Appendix 10C: Binomial Option Pricing Approach to the Bank’s Own Credit Risk.
Appendix 10D: Quantifying the Effects of Diversification on Loan Portfolios.
Liquidity Analysis.
What Is Liquidity Risk?
A Simple Balance Sheet Model of Liquidity.
Balance Sheet Liquidity Characteristics.
Managing Liquidity Risk: Perceptions and Reality.
Measuring Liquidation Cost Risk.
Controlling Liquidity Risk and the Safety Zone.
Diversification of Funding Sources.
The Contingency Planning Process.
Summary: Liquidity Risk and Shareholder Value.
Appendix 11A: Just What Is the “Liquidity Premium” Anyway?
Appendix 11B: The Cost of Bankruptcy and Liquidation Costs.
Appendix 11C: Liquidity in the Banking Industry.
Asset Securitization and Shareholder Value.
Asset Securitization: An Overview.
The Risk-Based Capital Ratio Impact on Originators and Buyers of Securitized Assets.
Securitization of Mortgage Loans.
Securitization of Other Assets.
Securitization and Capital Ratios From a Shareholder Value Perspective.
The Impact of Securitization on the Cost of Funds.
The Costs and the Process of Securitization.
Shareholder Value and Securitization: A Summary.
Profitability Measurement.
Guiding Principles.
Components of the Profitability System.
Budgeting, ALM, and Shareholder Value.
Cost Allocations.
A Cost Allocation Strategy.
Internal Funds Transfer Pricing.
Credit Allocations.
Capital Allocations.Appendix 13A: Cost Allocation Case Study.
Appendix 13B: Profitability Case Study.
Transfer Pricing.
Objectives of Transfer Pricing.
Overview of "Matched-Maturity" Transfer Pricing.
Advantages of the Matched-Maturity Transfer Pricing Method.
Selecting a Transfer Pricing Yield Curve.
Target versus Actual Credit Rating of the Bank.
Applying the 80/20 Rule to Transfer Pricing.
Use of Guaranteed Product Spreads.
Advantages and Disadvantages of the 80/20 Rule.
Prepayment Risk.
The Liquidity Commitment Spread.
Spread or Basis Risk.
A Survey of Transfer Pricing Adjustments.
Transfer Pricing Items Without Maturities: DDA and Equity.
Hedging Strategy for the Large Transaction Book.Putting It All Together.