BankManagement银行管理复习

1、BANK MANAGEMENTChapter 1 Fundamental Forces of Change in BankingP2.The Glass-Steagall Act which created three separate industries: commercial banking, investment banking, and insurance.The Bank Holding Act determined activities closely related to banking and limited the scope of activities a company

2、 could engage in if it owned a bank.The McFadden Act limited the geographic market of banking by allowing individual states to determine the extent to which a bank could branch intra- or inter-state.As a result of these acts, the United States developed aunique banking system which had alarge number

3、 of smaller banks; limited in the scope of products and services offered; and limited in the geographic areas covered by banks.P4.The Glass-Steagall Act and Bank Holding Act effectively restricted the activities of a bank to those closely related to banking as defined by Federal Reserve.This structu

4、ral change is frequently attributed to deregulation of the financial services industry. Deregulation was a natural response to increased competition between depository institutions and nondepository financial firms, and between the same type of competitors across world markets.Gramm-Leach-Billey Act

5、, also known as Financial Modernization Act, which made it possible for banks to create a financial holding company which could offer investment banking , insurance, and other once disallowed products and services.P5.Five fundamental forces have transformed the financial services market:1. Deregulat

6、ion/re-regulation2. Financial innovation3. Securitization4. Globalization5. Advances in technology.The latter factors actually represent responses to deregulation and re-regulation.P8-p9.Commercial paperUnpledged, short-term, based on credit.High quality corporate borrowers have always had the optio

7、n to issue commercial paper.Junk bondsAdvantages: access to larger amount of funds, longer-term financing, and fewer restrictive covenants.It s suitable for medium-sized companies representing lower-quality borrowers.P20. SecuritizationSecuritization is the process of converting assets into marketab

8、le securities.1. It enables banks to move assets off-balance sheet and increase fee income.2. It increases competition for standardized products such as: mortgages and other credit-scored loans.3. Eventually lowers the prices paid by consumers by increasing the supply and liquidity of these products

9、.P22.The objectives behind securitization include the following:1. Free capital for other uses2. Improve ROE via servicing income3. Diversify credit risk4. Obtain new sources of liquidity5. Reduce interest rate riskChapter 2 Analyzing Bank PerformanceP35.Accounting for securitiesAt purchase, must de

10、signate the objective behind buying investment securities as either:1. held-to-maturity securities are recorded on the balance sheet at amortized cost.2. trading account securities are actively bought and sold, so the bank marks the securities to market (reports them at current market value) on the

11、balance sheet and reports unrealized gains and losses on the income statement.3. available-for-sale, all other investment securities, are recorded at market value on the balance sheet with a correspondin g change to stockholders equity as unrealized gains and losses on securities holdings.P36,37Dema

12、nd deposits are transactions accounts that pay no interest.NOWs, ATS accounts: pay interest set by each bank without federal restrictions. NOWs are available only to noncommercial customers.Brokered deposits typically refers to jumbo CDs that a bank obtains through a brokerage house that markets the

13、 CDs to its customers.Core deposits are stable deposits that are not highly interest rate-sensitive.Core deposits include: demand deposits, NOW accounts, MMDAs, and small time deposits.Volatile liabilities or net non-core liabilities include: jumbo CDs (over 100,000), deposits in foreign offices, fe

14、deral funds purchased, repurchase agreements, and other borrowings with maturities less than one year.P39,42NII=II-IEBurde n=OE-OIEFF=OE/(NII+OI)NI=NII-Burde n-PLL+SG-TII: in terest i ncome, IE: in terest expe nse, NII: net in terest in come, OI: nonin terest i ncome,OE: nonin terest expe nse, EFF:

15、efficie ncy ratio, PLL: provisi ons for loa n losses,SG: securities losses, T: taxesInterest income is the sum of interest and fees earned on all of a banks assets, including : Loa ns, Deposits held at other in stituti ons, Muni cipal and taxable securities, in vestme nt and tradi ng acco unt securi

16、ties, ren tal receipts from lease financing.Interest expense is the sum of interest paid on all interest-bearing liabilities, including: tran sact ions acco unts (NOWs, ATS and MMDA), time and sav ings deposits, short-term non core liabilities, and Ion g-term debt.Nonin terest in come: trust or fidu

17、ciary in come, fees and deposit service charges, tradi ng revenu es, other foreig n tran sact ions and other nonin terest i ncome.Noninterest expense is composed primarily of:1. Personnel expe nse: salaries and fringe ben efits paid to bank employees,2. Occupa ncy expe nse : rent and depreciati on o

18、n equipme nt and premises, and3. Other operati ng expe nses: utilities and deposit in sura nee premiums.P45Bank Performa nee ModelBank rerformance ModelReturns to Shareholders ROE = Nl / TEINCOMEReturn to the BankROA 二 Nl i TAInterest Degree of LeverageEM = 1 /(TA/TE)Composition (mix)InterestRateVol

19、umeFees and Serv ChargeNon Interest = Tu戢RateComposition (mix)VolumeOtherOccupancyOtherSalaries and BenefitsP46-P48Return on equity (ROE = NI / T E)ROE is composed of two parts:Return on Assets (ROA = NI / TA ); Equity Multiplier ( EM = TA / TE ),ROE=ROA EMNI=Total revenue(TR) Total operating expens

20、e (EXP) Taxes ROA=NI/aTA = TR/aTA EXP/aT A Taxes/aT AP48,49Rate effects suggest that the interest cost per liability, which indicates the average cost of financing assets, may differ between banks.Composition (mix) effects suggest that the mix of liabilities may differ.Volume effects recognize that

21、a bank may pay more or less in interest expense simply because it operates with different amount of interest-bearing debt and equity and, thus, pays interest on a different amount of liabilities.P50,51Earnings base (EB) = Average earning assets / aTAEarning assets include all assets that generate ex

22、plicit interest income plus lease receipts. It can be measured most easily by subtracting all nonearning assets, such as noninterest cash and due from banks, acceptances, premises, and other assets, from total assets.Net interest margin : NIM = NII / earning assets (EA)Spread = (int inc / EA) - (int

23、 exp / int bear. Liab.)Burden ratio = (Noninterest exp. - Noninterest income) / aTAEfficiency ratio=Non int. Exp. / (Net int. Inc. + Non int. Inc.)P52The Federal Reserve Board has identified six types of risk:1. Credit risk2. Liquidity risk3. Market risk4. Operational risk5. Capital or solvency risk

24、6. Legal risk7. Reputational riskP55Past-due loans represents loans for which contracted interest and principle payments have not been made but are still accruing interest. Past due are often separated into 30-89 days past due and 90 days and over past due date.Nonperforming loans is loans that are

25、more than 90 days past due.Nonaccrual loans are those not currently accruing interest. These loans are currently-or have been habitually-past due, or have other problems, which have placed then in nonaccrual status.Total noncurrent loans are the sum of these two types of loans.Restructured loans are

26、 loans for which the lender has modified the required payments on principal or interest. The lender may have lengthened maturity and / or renegotiated the interest rate.Classified loans are general category of loans in which have regulators have forced management to set aside reserves for clearly re

27、cognized losses.P72Camels ratingsC= capital adequacyA= asset qualityM= management qualityE= earningsL= liquidityS= sensitivity to market riskChapter 3 Managing Noninterest Income and Noninterest ExpenseP89Key ratios:Burden = nonint. exp. nonint. inc.,Net overhead expense = burden / total assets,Effi

28、ciency ratio = nonint. Exp. (net int. inc. + nonint. inc.)Operating risk ratios:Operating risk ratio = (Noninterest expense Fee income)/Net interest marginSome analysts focus on a banks operating risk ratio in order to differentiate performance attributable to cost controls versus fee generation.The

29、 lower is the operating risk ratio, the better is the bank s operating per.foBremcanucse itgenerates proportionately more of its revenues from fees, which are more stable and thus more valuable.Productivity ratios indicate how efficiently banks are using their employees relative to capital assets.Tw

30、o commonly cited ratios are:1. Assets per full time employee = Average assets / Number of full-time employees2. Average personnel expense = Personal expense / Number of full-time employeesThe more productive bank typically has fewer employees per dollar of assets held and often controls personnel ex

31、pense per employee better.The second ratio is often high for high performance banks because they operate with fewer people but pay them more.Community banks also typically examine two additional ratios, because loans typically represent the largest asset holding, it is meaningful to calculate a loan

32、s-per-employee ratio as an indicator of loan productivity.Since loans are often as the largest asset held, community banks examine:Loans per full time employee = Average loans / Number of full-time employeesA ratio of net income per employee generally indicates the productivity and profitability of

33、a bank s workforce:Net income per employee = Net income / Number of full-time employeesp96Strategies to manage noninterest expenseFour different strategies are:1. expense reduction,2. increase operating efficiency,3. changing product pricing4. pursuing contribution growth whereby noninterest revenue

34、s rise by more than noninterest expense.expense reduction:Many banks begin cost management efforts by identifying excessive expenses and eliminating them.Given that noninterest expenses consist primarily of personnel, occupancy, and data processing costs, these are the areas where cuts are initially

35、 made.increase operating efficiencies:Another strategy is to increase operating efficiency in providing products and services.This can be achieved in one of three ways:1. reducing costs but maintaining the existing level of products and services,2. increasing the level of output but maintaining the

36、level of current expenses, or3. improving work flow.All these approaches fall under the label of increasing productivity because they involve delivering products at lower unit costs.revenue enhancement:This strategy involves changing the pricing of specific products but maintaining a sufficiently hi

37、gh volume of business so that total revenues increase.It is closely linked to the concept of price elasticity.Here, management wants to identify products or services that exhibit price inelastic demand. contribution growth:With this strategy, management allocates resources to best improve overall lo

38、ng-term profitability.Increases in expenses are acceptable, but they must coincide with greater anticipated increases in associated revenues.An example might be in vest ing in new computer systems and tech no logy to provide better customer service at reduced un it costs once volume is sufficie ntly

39、 large.In esse nee, expe nses are cut in the long run but not in the n ear future.Chapter 4 Managing In terest Rate Risk: GAP and Earnings Sen sitivityP104Traditi onal static GAP an alysis,basic steps to static gap an alysis1. Man ageme nt develops an in terest rate forecast2. Man ageme n t selects

40、a series of“ time buckets ” (in tervals) for determ ining whe n assets andliabilities are rate-se nsitive3. Group assets and liabilities into time buckets according to when they mature or re-price4. Man ageme nt forecasts NII give n the in terest rate en vir onmentGAP=RSAs-RSLsP107What determ ines r

41、ate sen sitivity?In general, an asset or liability is normally classified as rate-sensitive with a time frame if:1 .It matures2. It represents and interim, or partial, principal payment3. The interest rate applied to outstanding principal changes contractually during the interval4. The outstanding p

42、rincipal can be repriced when some base rate of index changes and man ageme nt expects the base rate / in dex to cha nge duri ng the in tervalP109GAP SummaryGAPChange in in terest ratesChange in in terest i ncomeChange in in terest expe nseChange in net in terest in comepositivefffpositiveJJJJn egat

43、ivefVffn egativeJJVJJZeroff=fnonezeroJJ=JnoneANII = (GAP) x (Aiexp.) NII= the expected cha nge in net in terest in come over a period of time from some base amount(GAP)= cumulative GAP over the interval through the end of the period of time,( iexp= the expected permanent change in the level of inter

44、est ratesP116Adva ntages / disadva ntages of GAP1. The primary adva ntage of GAP an alysis is its simplicity.2. The primary weakness is that it ignores the time value of money.3. GAP further ignores the impact of embedded opti ons.4. For this reas on, most banks con duct earnings sen sitivity an aly

45、sis, or pro forma an alysis, to project earnings and the variatio n in earnings un der differe nt in terest rate environmen ts.P127Steps that banks can take to reduce in terest rate risk in the con text of effective GAP man ageme nt:1. Calculate periodic GAPs over short time in tervals.2. Match fund

46、 repriceable assets with similar repriceable liabilities so that periodic GAPs approach zero.3. Match fund Iong-term assets with noninterest-bearing liabilities.4. Use off-bala nee sheet tran sact ions, such as in terest rate swaps and finan cial futures, to hedge.P128List below are obvious ways to

47、adjust the effective rate sensitivity of a bank assets and liabilities on bala nee sheet. Buy Ion ger-term securities.:ReduceassetLengthen the maturities of loans.ii:sen sitivityMove from float in g-rate loa ns to term loa ns.i Buy short-term securities.j In creaseasseti Shorten loan maturities.i se

48、nsitivity!:Make more loans on a floating-rate basis.i:ReduceliabilityPay premiums to attract Ion ger-term deposit in strume nts.:sensitivityIssue Iong-term subord inated debt.j In creaseliabilityi Pay premiums to attract short-term deposit instruments.! sensitivity1 Borrow more via non-core purchase

49、d liabilities.Chapter 5 Managing Interest Rate Risk: Duration GAP and Market Value of EquityP140(DGAP) = DA -(MVL / MV A) DLAMVE =-DGAP Ay / (1+y) MV AP141DGAP SummaryDGAPChange in in terest ratesChange in market valueassetsliabilitiesequitypositiveJJJpositiveJfffn egativeJVJJn egativeJfVfffzeroP fJ

50、=JfnonezeroJf=ffnoneP142Exhibit 5.4P144Embedded opti ons sharply in flue nee the estimated volatility in MVE1. Prepayme nts that exceed (fall short of) that expected will shorte n (le ngthe n) durati on.2. A bond being called will shorte n durati on.3. A deposit that is withdrawn early will shorten

51、duration. A deposit that is not withdrawn as expected will le ngthe n duratio n.P147Earning sen sitivity an alysis versus MVE sen sitivity an alysisGAP and earnings sen sitivity an alysis focus on the pote ntial volatility of n et in terest in come over disti net time in tervals. Net in terest in co

52、me is calculated in book value terms, not market values. A bank man ages the effects of volatile in terest rates within each time period separately.In contrast, the duration and MVE sensitivity approach focuses on the potential variability of a banks market value of equity. Duration gap is a single

53、measure that summarizes the cumulative impact of in terest rate cha nges on a bank total portfolio. Thus, the bank continu ously man ages total firm rate risk according to this one number.Because the models have different objectives,they address differe nt issues.Stren gths and weak nesses: DGAP and

54、 MVE sen sitivity an alysis1. DGAP recognizes the time value of each cash flow, avoiding the difficulty with time buckets.2. Cash flows that arise after one year are included in duration calculations, but often ignored in GAP calculatio ns.3. Duration measures are also additive so the bank can match

55、 total assets with total liabilities rather tha n match in dividual acco un ts.4. Durati on an alysis takes a Ion ger-term viewpoi nt and provides man agers with greater flexibility in adjusting rate sensitivity because they can use a wide range of instruments to balance value sensitivity.Duration a

56、nd MVE sensitivity analysis s weaknesses:1. It s difficult to compute duration accurately.2. To be correct duration analysis requires that each future cash flow be discounted by a distinct discount rate reflecting the expected future rate at the time the cash flow arises.3. A bank must continuously

57、monitor and adjust the duration of its portfolio.4. It s difficult to estimate the duration on assets and liabilities that do not earn or pay interest.Chapter 7 The Effective Use of CapitalP178The Basle agreementIn 1986, U.S. bank regulators proposed that U.S. banks be required to maintain capital that reflects the riskiness of bank assets.By 1988, the proposal had grown to include risk-based capital standards for