Contemporary Financial Intermediation

Contemporary Financial Intermediation, 4th Edition by Greenbaum, Thakor, and Boot continues to offer a distinctive approach to the study of financial markets and institutions by presenting an integrated portrait that puts information and economic reasoning at the core. Instead of primarily naming and describing markets, regulations, and institutions as is common, Contemporary Financial Intermediation explores the subtlety, plasticity and fragility of financial institutions and credit markets. In this new edition every chapter has been updated and pedagogical supplements have been enhanced. For the financial sector, the best preprofessional training explains the reasons why markets, institutions, and regulators evolve they do, why we suffer recurring financial crises occur and how we typically react to them. Our textbook demands more in terms of quantitative skills and analysis, but its ability to teach about the forces shaping the financial world is unmatched. Updates and expands a legacy title in a valuable field Holds a prominent position in a growing portfolio of finance textbooks Teaches tactics on how to recognize and forecast fluctuations in financial markets Cover Contemporary Financial Intermediation Dedication Copyright Preface Acknowledgments About the Authors Introduction Part I: The Background 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 Liquidity Systemic Risk Disagreement Mark-to-Market Accounting Part II: What is Financial Intermediation? 2. The Nature and Variety of Financial Intermediation Introduction What are Financial Intermediaries? The Variety of Financial Intermediaries Depository Financial Intermediaries Investment Banks: Key Nondepository Intermediaries in the Capital Market Separation Between Investment Banks and Commercial Banks Undone Other Nondepository Intermediaries Credit Rating Agencies The Role of the Government Financial Intermediaries on the Periphery Conclusion Review Questions Appendix 2.1 Measurement Distortions and the Balance Sheet 3. The What, How, and Why of Financial Intermediaries Introduction How Does the Financial System Work? Business Financing: Debt Fractional Reserve Banking and the Goldsmith Anecdote 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 Review Questions Appendix 3.1 The Formal Analysis of Large Intermediaries Appendix 3.2 Definitions Part III: Identification and Management of Major Banking Risks 4. Bank Risks Introduction Basic Banking Risks Credit, Interest Rate, and Liquidity Risks Enterprise Risk Management Conclusion Review Questions 5. Interest Rate Risk Introduction The Term Structure of Interest Rates The Lure of Interest Rate Risk and Its Potential Impact Duration Convexity Interest Rate Risk Conclusion Case Study: Eggleston State Bank 6. Liquidity Risk Introduction What, After All, is Liquidity Risk? Some Formal Definitions of Liquidity The Management of Liquidity Risk The Difficulty of Distinguishing Between Liquidity and Insolvency Risks and the LLR's Conundrum Conclusion Review Questions Appendix 6.1 Dissipation of Withdrawal Risk Through Diversification Appendix 6.2 Lender-of-Last-Resort Moral Hazard Part IV: “On Balance Sheet” Banking Activities 7. Spot Lending and Credit Risk Introduction Description of Bank Assets 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. Review Questions 8. Further Issues in Bank Lending Introduction Loan Pricing and Profit Margins: General Remarks Credit Rationing The Spot-Lending Decision Long-Term Bank–Borrower Relationships Loan Restructuring and Default Conclusion Case Study: Zeus Steel, Inc. Review Questions 9. Special Topics in Credit: Syndicated Loans, Loan Sales, and Project Finance Introduction Syndicated Lending Project Finance Conclusion Review Questions Part V: Off the Bank’s Balance Sheet 10. Off-Balance Sheet Banking and Contingent Claims Products Introduction Loan Commitments: A Description Rationale for Loan Commitments Who is Able to Borrow Under Bank Loan Commitments? Pricing of Loan Commitments The Differences Between Loan Commitments and Put Options 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 Review Questions 11. Securitization 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 Review Questions Part VI: The Funding of the Bank 12. The Deposit Contract, Deposit Insurance, and Shadow Banking Introduction The Deposit Contract Liability Management Deposit Insurance The Great Deposit Insurance Debacle Funding in the Shadow-Banking Sector Conclusion Review Questions 13. Bank Capital Structure Introduction Does the M&M Theorem Apply to Banks? Dispelling Some Fallacies The Theories of Bank Capital Structure Empirical Evidence on Bank Capital, Bank Lending, and Bank Value Why Then Do Banks Display a Preference for High Leverage? Bank Capital and Regulation Conclusion Review Questions Part VII: Financial Crises 14. The 2007–2009 Financial Crisis and Other Financial Crises Introduction What Happened Cause and Effect: The Causes of the Crisis and its Real Effects The Policy Responses to the Crisis Financial Crises in Other Countries and Regulatory Interventions Conclusion Part VIII: Bank Regulation 15. Objectives of Bank Regulation Introduction The Essence of Bank Regulation The Agencies of Bank Regulation Safety and Soundness Regulation Stability: Macroprudential Regulation Market Structure, Consumer Protection, Credit Allocation, and Monetary Control Regulation Conclusion Review Questions 16. Milestones in Banking Legislation and Regulatory Reform Introduction Milestones of Banking Legislation Problems of Bank Regulation The 1991 FDICIA and Beyond The Financial Services Modernization Act of 1999 The Dodd–Frank Wall Street Reform and Consumer Protection Act EU Regulatory and Supervisory Overhaul and the De Larosière Report Conclusion Review Questions Appendix Part IX: Financial Innovation 17. The Evolution of Banks and Markets and the Role of Financial Innovation Introduction Financial Development Financial Innovation The Dark Side of Financial Innovation Banks and Financial Markets Bank Versus Market: Complementarities and Shadow Banking Role of Credit-Rating Agencies Conclusion Review Questions Part X: The Future 18. The Future Introduction Change Drivers Initiatives that are Changing the Landscape Are Banks Doomed? Conclusion Subject Index Back Cover "Contemporary Financial Intermediation, 4th Edition by Greenbaum, Thakor, and Boot continues to offer a distinctive approach to the study of financial markets and institutions by presenting an integrated portrait that puts information and economic reasoning at the core. Instead of primarily naming and describing markets, regulations, and institutions as is common, Contemporary Financial Intermediation explores the subtlety, plasticity and fragility of financial institutions and credit markets. In this new edition every chapter has been updated and pedagogical supplements have been enhanced. For the financial sector, the best preprofessional training explains the reasons why markets, institutions, and regulators evolve they do, why we suffer recurring financial crises occur and how we typically react to them. Our textbook demands more in terms of quantitative skills and analysis, but its ability to teach about the forces shaping the financial world is unmatched." -- Back cover __Contemporary Financial Intermediation,__ __Contemporary Financial Intermediation__