Introduction to banking

Cover......Page 1
Title Page......Page 4
Copyright......Page 5
Contents......Page 8
List of figures......Page 14
List of tables......Page 18
List of boxes......Page 21
Preface......Page 24
Acknowledgements......Page 29
List of abbreviations and acronyms......Page 36
Part 1 Introduction to banking......Page 46
  1.2 The nature of financial intermediation......Page 48
  1.3 The role of banks......Page 52
  1.4 Information economies......Page 53
  1.5 Why do banks exist? Theories of financial intermediation......Page 59
  1.6 The benefits of financial intermediation......Page 61
  1.7 Conclusion......Page 62
  Key reading......Page 63
  Revision questions and problems......Page 64
  2.2 What do banks do?......Page 65
  2.3 Banks and other financial institutions......Page 66
  2.4 Banking services......Page 70
  2.5 Sustainable and ethical banking: a brief overview......Page 87
  2.6 Conclusion......Page 90
  Revision questions and problems......Page 91
  3.1 Introduction......Page 92
  3.2 Traditional versus modern banking......Page 93
  3.3 Retail or personal banking......Page 98
  3.4 Private banking......Page 104
  3.5 Corporate banking......Page 106
  3.6 Investment banking......Page 117
  3.7 Islamic banking......Page 123
  Key terms......Page 126
  Revision questions and problems......Page 127
  4.2 What is international banking?......Page 128
  4.3 Brief history of international banking......Page 131
  4.4 Why do banks go overseas?......Page 132
  4.5 Types of bank entry into foreign markets......Page 139
  4.6 International banking services......Page 144
  4.7 Conclusion......Page 157
  Key terms......Page 158
  Revision questions and problems......Page 159
  Appendix 4.1 Syndicated lending: a selected glossary......Page 160
Part 2 Central banking and bank regulation......Page 164
  5.1 Introduction......Page 166
  5.2 What are the main functions of a central bank?......Page 167
  5.3 How does monetary policy work?......Page 168
  5.4 Monetary policy functions of a central bank......Page 172
  5.5 Why do banks need a central bank?......Page 190
  5.6 Should central banks be independent?......Page 194
  5.7 Conclusion......Page 196
  Key reading......Page 197
  Revision questions and problems......Page 198
  6.2 The Bank of England......Page 199
  6.3 The European Central Bank (ECB)......Page 213
  6.4 The Federal Reserve System......Page 223
  6.5 Conclusion......Page 231
  Key terms......Page 232
  Revision questions and problems......Page 233
  7.1 Introduction......Page 234
  7.2 The rationale for regulation......Page 235
  7.3 Types of regulation......Page 236
  7.4 The financial safety net......Page 237
  7.5 Limitations of regulation......Page 247
  7.6 Causes of regulatory reform......Page 250
  7.7 Bank capital regulation......Page 251
  Key reading......Page 270
  Revision questions and problems......Page 271
  8.1 Introduction......Page 272
  8.2 The determinants of bank failure......Page 273
  8.3 Early warning systems for bank soundness......Page 278
  8.4 Bank restructuring......Page 284
  8.5 Banking crises......Page 291
  Key reading......Page 300
  Revision questions and problems......Page 301
Part 3 Issues in bank management......Page 302
  9.1 Introduction......Page 304
  9.2 Retail banks' balance sheet structure......Page 305
  9.3 Investment banks' financial statements......Page 319
  9.4 Bank performance and financial ratio analysis......Page 324
  Key reading......Page 339
  Revision questions and problems......Page 340
  10.1 Introduction......Page 341
  10.2 Asset–liability management (ALM)......Page 342
  10.3 Liquidity management and the importance of reserves......Page 347
  10.5 Off-balance-sheet (OBS) business in banking......Page 348
  10.6 Loan sales and the process of securitisation......Page 352
  10.7 Derivative business in banking......Page 355
  Key terms......Page 372
  Revision questions and problems......Page 373
  11.2 Credit risk......Page 374
  11.3 Interest rate risk......Page 377
  11.4 Liquidity (or funding) risk......Page 381
  11.5 Foreign exchange risk......Page 384
  11.6 Market (or trading) risk......Page 387
  11.7 Country and sovereign risk......Page 389
  11.9 Off-balance-sheet risk......Page 391
  11.10 Other risks......Page 392
  11.11 Capital risk and solvency......Page 393
  11.12 Interrelation of risks......Page 394
  11.13 Conclusion......Page 395
  Revision questions and problems......Page 396
  12.1 Introduction......Page 397
  12.2 General risk management......Page 398
  12.3 Credit risk management......Page 404
  12.4 Managing the lending function......Page 407
  12.5 Managing interest rate risk......Page 414
  12.6 Managing liquidity risk......Page 421
  12.7 Managing market risk......Page 423
  12.8 Managing operational risk......Page 429
  12.9 International risk assessment......Page 433
  Key terms......Page 440
  Revision questions and problems......Page 441
Part 4 Comparative banking markets......Page 442
  13.1 Introduction......Page 444
  13.2 The crisis in UK banking......Page 445
  13.3 Regulatory reforms and the changing face of UK banking......Page 454
  13.4 The structure of the UK banking sector......Page 462
  13.5 Financial structure of the UK banking sector......Page 467
  13.6 Balance sheet features and the performance of UK banks......Page 472
  13.7 The UK payment system......Page 476
  13.8 Competition in UK banking......Page 478
  Key terms......Page 483
  Revision questions and problems......Page 484
  Appendix 13.1 Demutualisation of the UK building society sector......Page 485
  14.1 Introduction......Page 486
  14.2 The European Union......Page 487
  14.3 The Single European Market for financial services......Page 491
  14.4 Building a new EU financial architecture......Page 499
  14.5 Structural features and the consolidation trend......Page 519
  14.6 Balance sheet structure and performance in European banking......Page 529
  Key terms......Page 534
  Revision questions and problems......Page 535
  15.1 Introduction......Page 536
  15.2 The financial crisis in the US......Page 537
  15.3 Structure of the US banking and financial systems......Page 544
  15.4 US payments systems......Page 552
  15.6 Performance of US commercial banks......Page 555
  15.7 Regulation of the US banking system......Page 560
  15.8 Conclusion......Page 569
  Key reading......Page 570
  Revision questions and problems......Page 571
  16.1 Introduction......Page 572
  16.2 Structure of the banking system......Page 573
  16.3 Payment systems......Page 583
  16.4 Banking crises in Japan......Page 587
  16.5 Changing structure of the financial system......Page 590
  16.6 Conclusion......Page 597
  Revision questions and problems......Page 598
  17.1 Introduction......Page 599
  17.2 Benchmarking financial development......Page 600
  17.3 Finance and growth......Page 605
  17.4 The macroeconomic outlook......Page 609
  17.5 Structural features and trends......Page 615
  17.6 Conclusion......Page 630
  Revision questions and problems......Page 631
Part 5 Advanced topics in banking......Page 632
  18.1 Introduction......Page 634
  18.2 Bank intermediation, markets and information......Page 635
  18.3 The development of the securitisation market......Page 638
  18.4 Modern securitisation process......Page 643
  18.5 The 'new wave' of securitisation......Page 649
  18.6 Types of securitisation......Page 651
  18.7 Securitisation, credit-rating agencies and monoline insurers......Page 652
  18.8 The future of securitisation......Page 656
  Key terms......Page 659
  Revision questions and problems......Page 660
  19.1 Introduction......Page 661
  19.2 Mergers and acquisitions: definitions and types......Page 662
  19.3 Recent trends in bank M&As......Page 666
  19.4 M&A and bank performance......Page 674
  19.5 Managerial motives for M&As......Page 677
  19.6 The impact of M&As on bank customers......Page 678
  19.7 M&As and bank diversification......Page 679
  19.8 The exploitation of safety-net subsidies and systemic risk......Page 682
  Key reading......Page 687
  Revision questions and problems......Page 688
  20.1 Introduction......Page 689
  20.2 Structure-conduct-performance (SCP)......Page 690
  20.3 Non-structural measures of banking sector competition......Page 698
  20.4 Comparing competition measures – are they consistent?......Page 705
  20.5 Competition and risk in banking......Page 707
  20.6 Bank competition and stability......Page 709
  Key terms......Page 712
  Revision questions and problems......Page 713
Appendix A1 Interest rates, bonds and yields......Page 714
Appendix A2 Introduction to portfolio theory......Page 724
Glossary......Page 734
References and further reading......Page 770
Index......Page 794