Theories and Cases
E-Book, Englisch, 562 Seiten
ISBN: 978-0-12-417167-1
Verlag: Elsevier Reference Monographs
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)
Describes theories and practices that define classes of institutions and differentiate one financial institution from another Presents short, focused treatments of risk and growth strategies by balancing theories and casesPlaces Islamic banking and finance into a comprehensive, universal perspective
Autoren/Hrsg.
Weitere Infos & Material
1;Front Cover;1
2;Strategies of Banks and Other Financial Institutions: Theories and Cases;4
3;Copyright;5
4;Contents;6
5;Preface;18
5.1;Strategies of Banks and Other Financial Institutions: Theories and Cases;18
6;Acknowledgments;20
7;Dedication;22
8;Part: A;24
8.1;Chapter 1: Strategies and Structures of Financial Institutions;26
8.1.1;1.1. Introduction;26
8.1.2;1.2. Banking Performance Trends;26
8.1.3;1.3. Strategic Trends;28
8.1.4;1.4. Reform Policy Trends;31
8.1.5;1.5. Technology Trends;31
8.1.5.1;1.5.1. The Growing Relevance of Digital Banking;31
8.1.5.2;1.5.2. Data Management at the Enterprise Level;33
8.1.5.3;1.5.3. Need for Scalable Architecture Framework for Digital Payments;34
8.1.5.4;1.5.4. Increasing Relevance of Virtual Currencies;34
8.1.6;1.6. Challenges of Global Financial Institutions;36
8.1.7;1.7. Changes in Control System 15 ;37
8.1.8;1.8. Banking Trends in Emerging Markets;37
8.1.9;1.9. The Financial Crisis of 2008;39
8.1.10;1.10. Impact of Financial Crisis on Banking System;41
8.1.11;1.11. Structures of Financial Institutions;43
8.1.11.1;1.11.1. Different Types of Financial Institutions;43
8.1.11.2;1.11.2. Banking Structures Based on Legal Frameworks;44
8.1.11.2.1;1.11.2.1. Bank holding companies and financial holding companies;44
8.1.11.2.2;1.11.2.2. C corporations and S corporations;45
8.1.11.3;1.11.3. Different Types of Banking Models;45
8.1.11.3.1;1.11.3.1. Narrow banks and universal banks;45
8.1.11.3.2;1.11.3.2. Retail banks;45
8.1.11.3.3;1.11.3.3. Private banks;46
8.1.11.3.4;1.11.3.4. Offshore banks;46
8.1.11.3.5;1.11.3.5. Investment banks;46
8.1.11.3.6;1.11.3.6. Islamic banks;46
8.1.11.4;1.11.4. Changing Financial Structures;46
8.1.12;1.12. Shadow Banking System;49
8.1.13;1.13. Consolidation in the Financial Services Industry;50
8.1.14;1.14. Importance of Corporate Governance in Financial Institutions;51
8.1.15;1.15. Summary;51
8.1.16;Questions for Discussion;52
8.1.17;References;52
8.2;Chapter 2: Regulatory Environment of Financial Institutions;54
8.2.1;2.1. Introduction;54
8.2.2;2.2. Universal Functions of Regulatory Agencies;55
8.2.3;2.3. History of Regulatory Reforms;55
8.2.3.1;2.3.1. Interest Rate Controls;55
8.2.3.2;2.3.2. Investment Restrictions on Financial Institutions;56
8.2.3.3;2.3.3. Line of Business Restrictions and Regulations on Ownership Linkages Among Financial Institutions;56
8.2.3.4;2.3.4. Restrictions on Entry of Foreign Financial Institutions;56
8.2.3.5;2.3.5. Controls on International Capital Movements and Foreign Exchange Transactions;56
8.2.4;2.4. Institutional Structures of Regulations;57
8.2.5;2.5. Drivers of Regulatory Reforms;57
8.2.6;2.6. Benefits of Regulatory Reform;57
8.2.7;2.7. Role of State in Regulatory System;59
8.2.8;2.8. Financial Crisis: Poor Governance of Financial Regulation;60
8.2.9;2.9. Initiatives for Stability of THE Financial System;61
8.2.10;2.10. Regulation of the Banking System;61
8.2.10.1;2.10.1. Instruments of Bank Regulation;62
8.2.10.1.1;2.10.1.1. Deposit insurance;62
8.2.10.1.2;2.10.1.2. Capital adequacy requirements;63
8.2.10.1.3;2.10.1.3. Glass-Steagall Act;63
8.2.11;2.11. Basel Reforms;63
8.2.11.1;2.11.1. Basel Committee on Banking Supervision;63
8.2.11.2;2.11.2. Committee on Global Financial System;64
8.2.11.3;2.11.3. Committee on Payment and Settlements Systems;65
8.2.11.4;2.11.4. Markets Committee;65
8.2.11.5;2.11.5. Central Bank Governance Forum;65
8.2.11.6;2.11.6. Irving Fisher Committee on Central Bank Statistics;65
8.2.11.7;2.11.7. Basel I Capital Accord;65
8.2.11.7.1;2.11.7.1. Tier 1 (core capital);65
8.2.11.7.2;2.11.7.2. Tier 2 (supplementary capital);65
8.2.11.8;2.11.8. Basel II Framework;66
8.2.11.8.1;2.11.8.1. Part 1—Scope of application;67
8.2.11.8.2;2.11.8.2. Part 2—First pillar: Minimum capital requirements;68
8.2.11.8.2.1;2.11.8.2.1. Constituents of capital;68
8.2.11.8.2.2;2.11.8.2.2. Capital requirements for credit risk;68
8.2.11.8.2.3;2.11.8.2.3. Operational risk;69
8.2.11.8.2.4;2.11.8.2.4. Market risk;69
8.2.11.8.2.5;2.11.8.2.5. Standardized approach;69
8.2.11.8.2.6;2.11.8.2.6. Internal models;70
8.2.11.8.3;2.11.8.3. Part 3—Second pillar: Supervisory review process;70
8.2.11.8.4;2.11.8.4. Part 4—Third pillar: Market disclosure;71
8.2.11.8.5;2.11.8.5. Basel II failure;72
8.2.11.9;2.11.9. Basel III Framework;73
8.2.11.9.1;2.11.9.1. Impact of Basel III implementation;76
8.2.11.9.2;2.11.9.2. Basel reforms: A critical analysis;76
8.2.12;2.12. Dodd-Frank Act;77
8.2.13;2.13. Systemically Important Financial Institutions;77
8.2.14;2.14. Financial Reforms in Europe;78
8.2.15;2.15. Regulation in Nonbanking Financial Sectors;78
8.2.15.1;2.15.1. Regulatory Measures for the Shadow Banking System;79
8.2.15.2;2.15.2. Regulations of Nonbanking Financial Institutions in the United States;79
8.2.15.3;2.15.3. Regulations of Nonbanking Financial Institutions in Europe;80
8.2.15.3.1;2.15.3.1. Regulations of money market funds;80
8.2.16;2.16. Regulations in Capital Market;80
8.2.16.1;2.16.1. Laws Governing the Securities Industry;81
8.2.16.1.1;2.16.1.1. Securities Act of 1933;81
8.2.16.1.2;2.16.1.2. Securities Exchange Act of 1934;81
8.2.16.1.3;2.16.1.3. Trust Indenture Act of 1939;81
8.2.16.1.4;2.16.1.4. Investment Act of 1940;81
8.2.16.1.5;2.16.1.5. Investment Advisers Act of 1940;81
8.2.16.1.6;2.16.1.6. Sarbanes-Oxley Act of 2002;81
8.2.16.1.7;2.16.1.7. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010;81
8.2.16.1.8;2.16.1.8. Jumpstart Our Business Startups (JOBS) Act of 2012;81
8.2.17;2.17. Summary;82
8.2.18;Questions for Discussion;82
8.2.19;References;82
8.3;Chapter 3: Risks Inherent in Financial Institutions;84
8.3.1;3.1. Introduction;84
8.3.2;3.2. History of Risk Measurement;84
8.3.3;3.3. Services Provided by Financial Institutions;85
8.3.4;3.4. Major Steps in Risk Management of Financial Institutions;86
8.3.5;3.5. Generic Risks in Financial Institutions;86
8.3.6;3.6. Risk Mitigation Strategies;86
8.3.7;3.7. Risk Management Crisis: Lessons Learned;87
8.3.8;3.8. Risk Management in Banks;89
8.3.8.1;3.8.1. Risk Management Framework in Banks: Structure and System;90
8.3.8.1.1;3.8.1.1. Structure;90
8.3.8.2;3.8.2. Risk Management System;91
8.3.8.2.1;3.8.2.1. Stress testing;91
8.3.8.2.1.1;3.8.2.1.1. Stress-testing approaches;91
8.3.8.2.1.1.1;3.8.2.1.1.1. Scenario analysis.;91
8.3.8.2.1.1.2;3.8.2.1.1.2. Sensitivity analysis.;92
8.3.8.2.1.1.3;3.8.2.1.1.3. Enterprisewide stress testing;92
8.3.8.2.1.1.4;3.8.2.1.1.4. Reverse stress testing;92
8.3.8.2.2;3.8.2.2. Asset and liability management;92
8.3.8.2.2.1;3.8.2.2.1. Fund transfer pricing;93
8.3.8.3;3.8.3. Different Types of Risks in Banks;94
8.3.8.3.1;3.8.3.1. Credit risk;94
8.3.8.3.1.1;3.8.3.1.1. Counterparty risk;94
8.3.8.3.1.2;3.8.3.1.2. Management of credit risk;94
8.3.8.3.1.3;3.8.3.1.3. Estimating credit losses;95
8.3.8.3.1.4;3.8.3.1.4. Measures of estimating credit losses;95
8.3.8.3.1.5;3.8.3.1.5. Instruments for management of credit risk;96
8.3.8.3.1.5.1;3.8.3.1.5.1. Estimating expected loan losses;96
8.3.8.3.1.5.2;3.8.3.1.5.2. Multitiered credit approving systems;96
8.3.8.3.1.5.3;3.8.3.1.5.3. Prudential limits;96
8.3.8.3.1.5.4;3.8.3.1.5.4. Risk ratings;96
8.3.8.3.1.5.5;3.8.3.1.5.5. Risk pricing;96
8.3.8.3.1.5.6;3.8.3.1.5.6. Portfolio models;96
8.3.8.3.1.5.7;3.8.3.1.5.7. Loan review mechanism;97
8.3.8.3.1.6;3.8.3.1.6. Managing credit risk in off-balance sheet exposure;97
8.3.8.3.2;3.8.3.2. Interest rate risk;97
8.3.8.3.2.1;3.8.3.2.1. Forms of interest rate risk;98
8.3.8.3.2.1.1;3.8.3.2.1.1. Gap or mismatch risk;98
8.3.8.3.2.1.2;3.8.3.2.1.2. Basis risk;98
8.3.8.3.2.1.3;3.8.3.2.1.3. Embedded option risk;98
8.3.8.3.2.1.4;3.8.3.2.1.4. Yield curve risk;98
8.3.8.3.2.1.5;3.8.3.2.1.5. Price risk;98
8.3.8.3.2.1.6;3.8.3.2.1.6. Reinvestment risk;98
8.3.8.3.2.1.7;3.8.3.2.1.7. Net interest position risk;98
8.3.8.3.2.2;3.8.3.2.2. Measurement of interest rate risk;98
8.3.8.3.2.2.1;3.8.3.2.2.1. Maturity gap analysis;98
8.3.8.3.2.2.2;3.8.3.2.2.2. Limitations of gap analysis;99
8.3.8.3.2.2.3;3.8.3.2.2.3. Duration gap analysis;99
8.3.8.3.2.2.4;3.8.3.2.2.4. Simulation analysis;100
8.3.8.3.3;3.8.3.3. Market risk;100
8.3.8.3.3.1;3.8.3.3.1. Management of market risk;100
8.3.8.3.3.1.1;3.8.3.3.1.1. Value at risk models;100
8.3.8.3.4;3.8.3.4. Liquidity risk;102
8.3.8.3.4.1;3.8.3.4.1. Funding liquidity risk;103
8.3.8.3.4.2;3.8.3.4.2. Trading liquidity risk;103
8.3.8.3.4.3;3.8.3.4.3. Principles of liquidity management;103
8.3.8.3.4.4;3.8.3.4.4. Management of liquidity risk;103
8.3.8.3.4.5;3.8.3.4.5. Liquidity gap and liquidity management;104
8.3.8.3.4.6;3.8.3.4.6. Alternate scenarios;105
8.3.8.3.4.7;3.8.3.4.7. Challenges of liquidity management;106
8.3.8.3.5;3.8.3.5. Operational risk;106
8.3.8.3.5.1;3.8.3.5.1. Operational risk management;107
8.3.8.3.6;3.8.3.6. Other perspectives of risk;107
8.3.8.3.6.1;3.8.3.6.1. Residual risk;107
8.3.8.3.6.2;3.8.3.6.2. Dilution risk;107
8.3.8.3.6.3;3.8.3.6.3. Settlement risk;107
8.3.8.3.6.4;3.8.3.6.4. Compliance risk;107
8.3.8.3.6.5;3.8.3.6.5. Strategic risk;108
8.3.8.3.6.6;3.8.3.6.6. Reputational risk;108
8.3.8.3.6.7;3.8.3.6.7. Concentration risk;108
8.3.8.3.6.8;3.8.3.6.8. Country risk;108
8.3.8.3.6.9;3.8.3.6.9. Foreign exchange risk;108
8.3.8.3.6.10;3.8.3.6.10. Delivery risk;108
8.3.8.3.6.11;3.8.3.6.11. Price risk;108
8.3.9;3.9. Risks in Major Nonbanking Financial Institutions;112
8.3.9.1;3.9.1. Risks in Insurance;112
8.3.9.1.1;3.9.1.1. Underwriting and investment risk;112
8.3.9.1.2;3.9.1.2. Other risks in the insurance business;113
8.3.9.2;3.9.2. Risk in Pension Funds;113
8.3.9.2.1;3.9.2.1. Risk management of pension funds;114
8.3.9.3;3.9.3. Risk in Mutual Funds;114
8.3.10;3.10. Summary;114
8.3.11;Questions for Discussion;115
8.3.12;References;115
8.4;Chapter 4: Money Markets, Bond Markets, and Mortgage Markets;118
8.4.1;4.1. Introduction;118
8.4.2;4.2. Financial Market Instruments;119
8.4.2.1;4.2.1. Money Market Instruments;119
8.4.2.1.1;4.2.1.1. Types of money market instruments;120
8.4.2.1.1.1;4.2.1.1.1. Treasury bills;120
8.4.2.1.1.2;4.2.1.1.2. Federal agency notes;120
8.4.2.1.1.3;4.2.1.1.3. Tax-exempt state and municipal short-term notes;120
8.4.2.1.1.4;4.2.1.1.4. Certificates of deposit;120
8.4.2.1.1.5;4.2.1.1.5. Types of CDs;121
8.4.2.1.1.5.1;4.2.1.1.5.1. Traditional CD;121
8.4.2.1.1.5.2;4.2.1.1.5.2. Bump-up CD;121
8.4.2.1.1.5.3;4.2.1.1.5.3. Liquid CD;121
8.4.2.1.1.5.4;4.2.1.1.5.4. Zero coupon CD;121
8.4.2.1.1.5.5;4.2.1.1.5.5. Callable CD;121
8.4.2.1.1.5.6;4.2.1.1.5.6. Brokered CD;121
8.4.2.1.1.6;4.2.1.1.6. Commercial papers;121
8.4.2.1.1.7;4.2.1.1.7. Bankers' acceptances;122
8.4.2.1.1.8;4.2.1.1.8. Repurchase agreements;122
8.4.2.1.1.9;4.2.1.1.9. Types of repos;123
8.4.2.1.1.9.1;4.2.1.1.9.1. Hold in custody repo;123
8.4.2.1.1.9.2;4.2.1.1.9.2. Tri-party repo;123
8.4.2.1.1.9.3;4.2.1.1.9.3. Reverse repo;123
8.4.2.1.1.9.4;4.2.1.1.9.4. Other types of repos;123
8.4.2.1.1.10;4.2.1.1.10. Eurodollar deposits;123
8.4.2.1.1.11;4.2.1.1.11. Foreign exchange swaps;124
8.4.2.1.2;4.2.1.2. Participants in the money market;124
8.4.2.1.2.1;4.2.1.2.1. Governments;124
8.4.2.1.2.2;4.2.1.2.2. Commercial banks;124
8.4.2.1.2.3;4.2.1.2.3. Corporations;125
8.4.2.1.2.4;4.2.1.2.4. Government-sponsored enterprises;125
8.4.2.1.2.5;4.2.1.2.5. Money market mutual funds;125
8.4.2.1.2.6;4.2.1.2.6. Broker-dealers;125
8.4.2.2;4.2.2. Capital Market Instruments;125
8.4.2.2.1;4.2.2.1. Types of capital market instruments;126
8.4.2.2.1.1;4.2.2.1.1. Treasury notes;126
8.4.2.2.1.2;4.2.2.1.2. Treasury bonds;126
8.4.2.2.1.3;4.2.2.1.3. Treasury inflation-protected securities;126
8.4.2.2.1.4;4.2.2.1.4. Separate trading of registered interest and principal securities;126
8.4.2.2.1.5;4.2.2.1.5. Municipal bonds;127
8.4.2.2.1.6;4.2.2.1.6. Secured premium notes;127
8.4.2.2.1.7;4.2.2.1.7. Corporate bond market;127
8.4.2.2.1.8;4.2.2.1.8. Corporate bonds;127
8.4.2.2.1.9;4.2.2.1.9. Types of corporate bonds;127
8.4.2.2.1.9.1;4.2.2.1.9.1. Fixed-rate coupon bonds;128
8.4.2.2.1.9.2;4.2.2.1.9.2. Zero coupon bonds;128
8.4.2.2.1.9.3;4.2.2.1.9.3. Floating rate bonds;128
8.4.2.2.1.9.4;4.2.2.1.9.4. Variable and adjustable rate;128
8.4.2.2.1.9.5;4.2.2.1.9.5. Callable and putable bonds;128
8.4.2.2.1.9.6;4.2.2.1.9.6. Step-up and step-down corporate bonds;128
8.4.2.2.1.9.7;4.2.2.1.9.7. Convertible bonds;128
8.4.2.2.1.9.8;4.2.2.1.9.8. Pay in kind bonds;128
8.4.2.2.1.9.9;4.2.2.1.9.9. Floating-rate and increasing-rate notes;128
8.4.2.2.1.9.10;4.2.2.1.9.10. Extendable reset notes;128
8.4.2.2.1.9.11;4.2.2.1.9.11. Deferred-interest bonds;128
8.4.2.2.1.9.12;4.2.2.1.9.12. Multi-tranche bonds;128
8.4.2.2.1.9.13;4.2.2.1.9.13. Asset-backed securities and mortgage-backed securities;128
8.4.2.2.1.9.14;4.2.2.1.9.14. Junk bonds;129
8.4.2.2.1.10;4.2.2.1.10. Fundamentals of corporate bonds;129
8.4.2.2.1.11;4.2.2.1.11. Bond features;129
8.4.2.2.1.12;4.2.2.1.12. Bond ratings;130
8.4.2.2.1.13;4.2.2.1.13. Major corporate bond issues;131
8.4.2.2.2;4.2.2.2. Debt instruments in international financial markets;131
8.4.2.2.2.1;4.2.2.2.1. Syndicated euro credit loans;132
8.4.2.2.2.2;4.2.2.2.2. Euro commercial papers;132
8.4.2.2.2.3;4.2.2.2.3. Euro notes;132
8.4.2.2.2.4;4.2.2.2.4. Euro medium-term notes;132
8.4.2.2.2.5;4.2.2.2.5. Eurobonds;133
8.4.2.2.2.6;4.2.2.2.6. Types of Eurobonds;133
8.4.2.2.2.7;4.2.2.2.7. Special types of Eurobonds in financial markets;133
8.4.2.2.2.8;4.2.2.2.8. Floating rate notes;134
8.4.2.2.2.9;4.2.2.2.9. Types of FRNs;134
8.4.2.2.2.9.1;4.2.2.2.9.1. Perpetual FRNs;134
8.4.2.2.2.9.2;4.2.2.2.9.2. Fake perpetual FRNs;134
8.4.2.2.2.9.3;4.2.2.2.9.3. Variable rate notes;134
8.4.2.2.2.9.4;4.2.2.2.9.4. Reverse FRNs;134
8.4.2.2.2.9.5;4.2.2.2.9.5. Collared FRNs;134
8.4.2.2.2.9.6;4.2.2.2.9.6. Step-up recovery FRNs;134
8.4.2.2.2.9.7;4.2.2.2.9.7. Interest rate differential notes;135
8.4.2.2.2.9.8;4.2.2.2.9.8. Leveraged FRNs;135
8.4.2.2.2.9.9;4.2.2.2.9.9. Ratchet FRNs;135
8.4.2.2.2.9.10;4.2.2.2.9.10. Corridor floating rate notes;135
8.4.2.2.2.10;4.2.2.2.10. Foreign bonds;135
8.4.2.2.2.11;4.2.2.2.11. Global bonds;135
8.4.2.2.2.12;4.2.2.2.12. Sovereign bonds;135
8.4.2.2.3;4.2.2.3. Trends in global bond market;135
8.4.2.2.4;4.2.2.4. Bond market participants;136
8.4.2.2.5;4.2.2.5. Secondary bond markets;136
8.4.2.2.6;4.2.2.6. Bond investment strategies;137
8.4.2.2.7;4.2.2.7. Passive strategies;137
8.4.2.2.7.1;4.2.2.7.1. Buy and hold strategy;137
8.4.2.2.7.2;4.2.2.7.2. Laddered strategy;137
8.4.2.2.7.3;4.2.2.7.3. Barbell strategy;137
8.4.2.2.7.4;4.2.2.7.4. Indexing strategy;138
8.4.2.2.8;4.2.2.8. Active strategies;138
8.4.2.2.9;4.2.2.9. Match funding strategies;138
8.4.2.2.10;4.2.2.10. Contingent and structured strategies;138
8.4.2.2.11;4.2.2.11. Other specific strategies;138
8.4.2.2.11.1;4.2.2.11.1. Maximizing income;138
8.4.2.2.11.2;4.2.2.11.2. Rolling down yield curve;138
8.4.3;4.3. Mortgage Markets;139
8.4.3.1;4.3.1. Participants in the Mortgage Markets;140
8.4.3.2;4.3.2. Types of Mortgages;140
8.4.3.2.1;4.3.2.1. Fixed rate mortgages;140
8.4.3.2.2;4.3.2.2. Adjustable rate mortgages;140
8.4.3.2.3;4.3.2.3. Graduated payment mortgages;140
8.4.3.2.4;4.3.2.4. Automatic rate reduction mortgages;140
8.4.3.2.5;4.3.2.5. Growing equity mortgages;140
8.4.3.2.6;4.3.2.6. Second mortgages;141
8.4.3.2.7;4.3.2.7. Shared appreciation mortgages;141
8.4.3.2.8;4.3.2.8. Equity participation mortgages;141
8.4.3.2.9;4.3.2.9. Reverse annuity mortgages;141
8.4.3.2.10;4.3.2.10. Amortization and balloon payment mortgages;141
8.4.3.3;4.3.3. Mortgage-Backed Securities;141
8.4.3.3.1;4.3.3.1. Risks in mortgage investments and MBS;142
8.4.3.3.2;4.3.3.2. Types of MBS;143
8.4.3.3.2.1;4.3.3.2.1. Pass-through securities;143
8.4.3.3.2.2;4.3.3.2.2. Collateralized mortgage obligations;143
8.4.3.3.2.3;4.3.3.2.3. Asset-backed securities;143
8.4.3.3.2.4;4.3.3.2.4. Collateralized debt obligation;143
8.4.3.3.3;4.3.3.3. Subprime mortgage crisis;144
8.4.4;4.4. Summary;145
8.4.5;Questions for Discussion;146
8.4.6;References;146
8.5;Chapter 5: Stock Markets, Derivatives Markets, and Foreign Exchange Markets;148
8.5.1;5.1. Stock Markets and Instruments;148
8.5.1.1;5.1.1. Introduction;148
8.5.1.2;5.1.2. Stock Market Instruments and Characteristics;148
8.5.1.2.1;5.1.2.1. Common stock;148
8.5.1.2.2;5.1.2.2. Preferred stock;149
8.5.1.2.3;5.1.2.3. Primary stock market;149
8.5.1.2.3.1;5.1.2.3.1. IPO process;150
8.5.1.2.3.2;5.1.2.3.2. Shelf registration;150
8.5.1.2.3.3;5.1.2.3.3. Private placements;150
8.5.1.2.3.4;5.1.2.3.4. Green shoe option;150
8.5.1.2.3.5;5.1.2.3.5. Flipping shares;151
8.5.1.2.3.6;5.1.2.3.6. Underpricing of IPOs;151
8.5.1.2.4;5.1.2.4. Secondary stock markets;151
8.5.1.2.5;5.1.2.5. Stock market transactions and strategies;153
8.5.1.2.5.1;5.1.2.5.1. Market orders;153
8.5.1.2.5.2;5.1.2.5.2. Limit orders;153
8.5.1.2.5.3;5.1.2.5.3. Special orders;153
8.5.1.2.5.4;5.1.2.5.4. Margin transactions;153
8.5.1.2.5.5;5.1.2.5.5. Short selling;154
8.5.1.2.6;5.1.2.6. Facilitators in stock transactions;154
8.5.1.2.6.1;5.1.2.6.1. Floor broker;154
8.5.1.2.6.2;5.1.2.6.2. Market maker;154
8.5.1.2.6.3;5.1.2.6.3. Specialist;154
8.5.1.2.7;5.1.2.7. Innovations in trading systems;154
8.5.1.2.8;5.1.2.8. New trading systems;155
8.5.1.2.9;5.1.2.9. Regulation in the stock market;155
8.5.1.2.10;5.1.2.10. Participants in the stock market;156
8.5.1.2.11;5.1.2.11. Stock market indexes;156
8.5.1.2.11.1;5.1.2.11.1. Dow Jones Industrial Average;156
8.5.1.2.11.2;5.1.2.11.2. NYSE Composite Index;156
8.5.1.2.11.3;5.1.2.11.3. NASDAQ Composite Index;156
8.5.1.2.11.4;5.1.2.11.4. Standard & Poor’s 500;157
8.5.1.2.11.5;5.1.2.11.5. Nikkei 225 or Nikkei;157
8.5.1.2.11.6;5.1.2.11.6. Emerging markets;157
8.5.1.2.12;5.1.2.12. Investing in foreign stocks;157
8.5.1.2.12.1;5.1.2.12.1. Direct purchases;157
8.5.1.2.12.2;5.1.2.12.2. International mutual funds;157
8.5.1.2.12.3;5.1.2.12.3. International exchange-traded funds;157
8.5.1.2.12.4;5.1.2.12.4. American depository receipts;157
8.5.1.2.12.5;5.1.2.12.5. Global depository receipts;158
8.5.1.2.13;5.1.2.13. Common stock portfolio management strategies;158
8.5.1.2.14;5.1.2.14. Stock market trends;158
8.5.1.2.15;5.1.2.15. Bull and bear markets;159
8.5.1.2.16;5.1.2.16. Major stock exchanges in the world;159
8.5.1.2.16.1;5.1.2.16.1. New York Stock Exchange Euronext;159
8.5.1.2.16.2;5.1.2.16.2. National Association of Securities Dealers Automated Quotation System;160
8.5.1.2.16.3;5.1.2.16.3. London Stock Exchange;160
8.5.1.2.16.4;5.1.2.16.4. Tokyo Stock Exchange;161
8.5.2;5.2. Derivatives Market and Instruments;161
8.5.2.1;5.2.1. Introduction;161
8.5.2.2;5.2.2. Classification of Derivatives;161
8.5.2.3;5.2.3. Users of Derivatives;162
8.5.2.4;5.2.4. Volume of Bank Exposure in Derivatives Trading;162
8.5.2.5;5.2.5. Major Derivatives Exchanges;162
8.5.2.5.1;5.2.5.1. CME Group;162
8.5.2.5.2;5.2.5.2. Eurex Exchange;163
8.5.2.5.3;5.2.5.3. NYSE Euronext Liffe;164
8.5.2.6;5.2.6. Derivatives Instruments;164
8.5.2.6.1;5.2.6.1. Forward contracts;164
8.5.2.6.2;5.2.6.2. Futures contracts;164
8.5.2.6.2.1;5.2.6.2.1. Treasury bond futures;164
8.5.2.6.2.2;5.2.6.2.2. Stock index futures;164
8.5.2.6.2.3;5.2.6.2.3. Eurodollar futures;165
8.5.2.6.3;5.2.6.3. Options contracts;165
8.5.2.6.3.1;5.2.6.3.1. Equity options;165
8.5.2.6.3.2;5.2.6.3.2. Stock index and index ETF options;165
8.5.2.6.3.3;5.2.6.3.3. Currency options;165
8.5.2.6.3.4;5.2.6.3.4. Options on futures contracts;165
8.5.2.6.3.5;5.2.6.3.5. Swaptions;165
8.5.2.6.3.6;5.2.6.3.6. Futures options;165
8.5.2.6.3.7;5.2.6.3.7. Options on interest rate futures;166
8.5.2.6.4;5.2.6.4. Forward rate agreements;166
8.5.2.6.5;5.2.6.5. Swaps;166
8.5.2.6.5.1;5.2.6.5.1. Currency swaps;166
8.5.2.6.5.2;5.2.6.5.2. Amortizing swaps;166
8.5.2.6.5.3;5.2.6.5.3. Deferred swaps;166
8.5.2.6.5.4;5.2.6.5.4. Constant maturity swaps;166
8.5.2.6.5.5;5.2.6.5.5. Compounding swaps;166
8.5.2.6.5.6;5.2.6.5.6. Accrual swaps;167
8.5.2.6.5.7;5.2.6.5.7. Cross-currency interest rate swaps;167
8.5.2.6.5.8;5.2.6.5.8. Equity swaps;167
8.5.2.6.5.9;5.2.6.5.9. Commodity swaps;167
8.5.2.6.5.10;5.2.6.5.10. Interest rate swaps;167
8.5.2.6.5.11;5.2.6.5.11. LIBOR in arrears swaps;167
8.5.2.6.5.12;5.2.6.5.12. Accrual swaps;167
8.5.2.6.5.13;5.2.6.5.13. Cancelable swaps;167
8.5.2.6.6;5.2.6.6. Packages;167
8.5.2.6.6.1;5.2.6.6.1. Forward start options;167
8.5.2.6.6.2;5.2.6.6.2. Compound options;167
8.5.2.6.6.3;5.2.6.6.3. Barrier options;168
8.5.2.6.6.4;5.2.6.6.4. Binary options;168
8.5.2.6.6.5;5.2.6.6.5. Lookback options;168
8.5.2.6.6.6;5.2.6.6.6. Shout options;168
8.5.2.6.6.7;5.2.6.6.7. Asian options;168
8.5.2.6.7;5.2.6.7. Weather derivatives;168
8.5.2.6.8;5.2.6.8. Insurance derivatives;168
8.5.2.6.9;5.2.6.9. Commodity derivatives;168
8.5.2.6.10;5.2.6.10. Asset-backed securities in the securitization market;168
8.5.2.6.11;5.2.6.11. Credit derivatives;169
8.5.2.7;5.2.7. Derivatives Risks in Banks;170
8.5.2.8;5.2.8. Functions of Financial Institutions in Derivatives Markets;170
8.5.2.8.1;5.2.8.1. Role of financial institutions in forwards, futures, and options contracts;171
8.5.2.8.2;5.2.8.2. Role of financial institutions in swaps;171
8.5.2.8.3;5.2.8.3. Role of financial institutions in asset securitization;172
8.5.2.8.4;5.2.8.4. Role of banks in credit derivatives;172
8.5.2.8.4.1;5.2.8.4.1. Players in the derivatives market;172
8.5.2.8.4.2;5.2.8.4.2. Hedging with derivatives;173
8.5.3;5.3. Foreign Exchange Market and Instruments;173
8.5.3.1;5.3.1. International Monetary Systems;173
8.5.3.1.1;5.3.1.1. The era of bimetallism;173
8.5.3.1.2;5.3.1.2. Gold standard;173
8.5.3.1.3;5.3.1.3. Gold exchange standard;174
8.5.3.1.4;5.3.1.4. Flexible exchange rate regime;174
8.5.3.2;5.3.2. European Monetary System;175
8.5.3.3;5.3.3. Balance of Payment;175
8.5.3.4;5.3.4. Determinants of Exchange Rates;176
8.5.3.4.1;5.3.4.1. International parity relationships;176
8.5.3.4.1.1;5.3.4.1.1. Law of one price;176
8.5.3.4.1.2;5.3.4.1.2. Purchase power parity;176
8.5.3.4.1.3;5.3.4.1.3. Interest rate parity;176
8.5.3.4.1.4;5.3.4.1.4. Fisher effect;177
8.5.3.4.1.5;5.3.4.1.5. International Fisher effect;177
8.5.3.5;5.3.5. Foreign Exchange Market and Instruments;177
8.5.3.5.1;5.3.5.1. Exchange rate quotation;177
8.5.3.6;5.3.6. Types of Foreign Exchange Markets;178
8.5.3.6.1;5.3.6.1. Spot market;178
8.5.3.6.2;5.3.6.2. Currency forward market;178
8.5.3.6.3;5.3.6.3. Currency futures market;178
8.5.3.6.4;5.3.6.4. Currency swap market;179
8.5.3.6.5;5.3.6.5. Currency options market;179
8.5.3.7;5.3.7. Market Trends in Foreign Exchange Markets;179
8.5.3.8;5.3.8. Foreign Exchange Risk Management;180
8.5.3.9;5.3.9. Management of Transaction Exposure;181
8.5.3.9.1;5.3.9.1. Internal techniques;181
8.5.3.9.1.1;5.3.9.1.1. Hedging through invoice currency;181
8.5.3.9.1.2;5.3.9.1.2. Leading and lagging;182
8.5.3.9.1.3;5.3.9.1.3. Matching;182
8.5.3.9.2;5.3.9.2. External techniques;182
8.5.3.9.2.1;5.3.9.2.1. Forward contracts;182
8.5.3.9.2.2;5.3.9.2.2. Futures contracts;182
8.5.3.9.2.3;5.3.9.2.3. Money market hedges;182
8.5.3.9.2.4;5.3.9.2.4. Options;182
8.5.3.9.2.5;5.3.9.2.5. Bilateral and Multilateral Netting;183
8.5.3.10;5.3.10. Management of Operating Exposure;183
8.5.3.10.1;5.3.10.1. Marketing strategies;183
8.5.3.10.2;5.3.10.2. Production strategies;183
8.5.3.10.3;5.3.10.3. Financial strategies;183
8.5.3.11;5.3.11. Management of Translation Exposure;183
8.5.3.11.1;5.3.11.1. Measures of translation exposure;183
8.5.3.12;5.3.12. Market Participants in the Foreign Exchange Market;184
8.5.4;5.4. Summary;185
8.5.5;Questions for Discussion;186
8.5.6;References;187
8.6;Chapter 6: Strategies of Depository Institutions;188
8.6.1;6.1. Commercial Banks and Thrift Institutions;188
8.6.1.1;6.1.1. Introduction: Commercial Banks;188
8.6.1.1.1;6.1.1.1. Global commercial banking trends;189
8.6.1.1.2;6.1.1.2. Challenges in the commercial banking industry;191
8.6.1.1.3;6.1.1.3. Functions of commercial banks;192
8.6.1.1.3.1;6.1.1.3.1. Accept deposits;192
8.6.1.1.3.1.1;6.1.1.3.1.1. Significance of deposits;193
8.6.1.1.3.1.2;6.1.1.3.1.2. Nature of deposits;193
8.6.1.1.3.2;6.1.1.3.2. Provide loans;193
8.6.1.1.3.2.1;6.1.1.3.2.1. Secured loans;194
8.6.1.1.3.2.2;6.1.1.3.2.2. Unsecured loans;194
8.6.1.1.3.2.3;6.1.1.3.2.3. Mortgage loans;194
8.6.1.1.3.2.4;6.1.1.3.2.4. Business lending;194
8.6.1.1.3.3;6.1.1.3.3. Overdraft services;194
8.6.1.1.3.4;6.1.1.3.4. Discounting of bills of exchange;195
8.6.1.1.3.5;6.1.1.3.5. Fund investment;195
8.6.1.1.3.6;6.1.1.3.6. Buy/hold securities;195
8.6.1.1.3.7;6.1.1.3.7. Agency functions;195
8.6.1.1.3.8;6.1.1.3.8. Miscellaneous functions;195
8.6.1.1.4;6.1.1.4. Sources of funds for commercial banks;195
8.6.1.1.5;6.1.1.5. Uses of funds by banks;196
8.6.1.1.5.1;6.1.1.5.1. Business loans;196
8.6.1.1.5.2;6.1.1.5.2. Loan syndication;196
8.6.1.1.5.3;6.1.1.5.3. Consumer loans;197
8.6.1.1.5.4;6.1.1.5.4. Investment in government securities and bonds;197
8.6.1.1.5.5;6.1.1.5.5. Other uses of funds;197
8.6.1.1.6;6.1.1.6. Commercial bank statistics;197
8.6.1.1.7;6.1.1.7. Off-balance sheet activities;197
8.6.1.1.8;6.1.1.8. Types of commercial banking customers;198
8.6.1.1.9;6.1.1.9. Special characteristics of commercial banks;199
8.6.1.1.10;6.1.1.10. Components of income statements;199
8.6.1.1.10.1;6.1.1.10.1. Interest income;199
8.6.1.1.10.2;6.1.1.10.2. Interest expense;199
8.6.1.1.10.3;6.1.1.10.3. Net interest income;199
8.6.1.1.10.4;6.1.1.10.4. Noninterest income;200
8.6.1.1.10.5;6.1.1.10.5. Provision for loan losses;200
8.6.1.1.10.6;6.1.1.10.6. Net income;200
8.6.1.1.11;6.1.1.11. Framework for bank performance evaluation;200
8.6.1.1.12;6.1.1.12. Analysis of bank performance;201
8.6.1.1.12.1;6.1.1.12.1. Profitability measures;201
8.6.1.1.12.1.1;6.1.1.12.1.1. Return on equity;201
8.6.1.1.12.1.2;6.1.1.12.1.2. Return on assets;201
8.6.1.1.12.1.3;6.1.1.12.1.3. Equity multiplier;201
8.6.1.1.12.1.4;6.1.1.12.1.4. Profit margin;201
8.6.1.1.12.1.5;6.1.1.12.1.5. Asset utilization;201
8.6.1.1.12.2;6.1.1.12.2. Other profitability ratios;201
8.6.1.1.12.2.1;6.1.1.12.2.1. Net interest margin;201
8.6.1.1.12.2.2;6.1.1.12.2.2. Spread;201
8.6.1.1.12.2.3;6.1.1.12.2.3. Efficiency ratio;202
8.6.1.1.12.2.4;6.1.1.12.2.4. Overhead efficiency ratio;202
8.6.1.1.12.2.5;6.1.1.12.2.5. Risk adjusted return on capital;202
8.6.1.1.12.2.6;6.1.1.12.2.6. Expense ratios;202
8.6.1.1.12.2.7;6.1.1.12.2.7. Productivity ratios;202
8.6.1.1.12.2.8;6.1.1.12.2.8. Leverage ratios;202
8.6.1.1.12.3;6.1.1.12.3. CAMEL rating system;202
8.6.1.1.12.3.1;6.1.1.12.3.1. Capital adequacy;203
8.6.1.1.12.3.2;6.1.1.12.3.2. Asset quality;203
8.6.1.1.12.3.3;6.1.1.12.3.3. Management quality;204
8.6.1.1.12.3.4;6.1.1.12.3.4. Earning ability;204
8.6.1.1.12.3.5;6.1.1.12.3.5. Liquidity;205
8.6.1.1.12.3.6;6.1.1.12.3.6. Sensitivity to market risk;205
8.6.1.1.13;6.1.1.13. Key banking rates/ratios;205
8.6.1.1.13.1;6.1.1.13.1. Bank rate;205
8.6.1.1.13.2;6.1.1.13.2. Repo rate;205
8.6.1.1.13.3;6.1.1.13.3. Reverse repo rate;205
8.6.1.1.13.4;6.1.1.13.4. Cash reserve ratio;205
8.6.1.1.13.5;6.1.1.13.5. Statutory liquidity ratio;206
8.6.1.1.13.6;6.1.1.13.6. Credit to deposit ratio;206
8.6.1.1.13.7;6.1.1.13.7. Nonperforming assets to loans (advances);206
8.6.1.1.13.8;6.1.1.13.8. Provision coverage ratio;206
8.6.1.1.13.9;6.1.1.13.9. Rate paid on funds;206
8.6.1.1.13.10;6.1.1.13.10. Gross yield on earning assets;206
8.6.1.1.14;6.1.1.14. Credit appraisal at commercial banks;206
8.6.1.2;6.1.2. Thrift Institutions;207
8.6.1.2.1;6.1.2.1. New regulations for thrift institutions;208
8.6.1.2.1.1;6.1.2.1.1. Qualified thrift lender test;208
8.6.1.2.2;6.1.2.2. Types of thrift institutions;209
8.6.1.2.2.1;6.1.2.2.1. Mutual savings banks;209
8.6.1.2.2.2;6.1.2.2.2. Savings and loan associations;209
8.6.1.2.2.3;6.1.2.2.3. Credit unions;209
8.6.1.2.3;6.1.2.3. Risk management in thrift institutions;211
8.6.1.2.4;6.1.2.4. Participation of savings institutions in financial markets;212
8.6.2;6.2. Summary;212
8.6.3;Questions for Discussion;213
8.6.4;References;213
8.7;Chapter 7: Investment Banks and Finance Companies;214
8.7.1;7.1. Introduction to Investment Banking;214
8.7.1.1;7.1.1. Functions of Investment Banking;214
8.7.1.1.1;7.1.1.1. Raising funds;215
8.7.1.1.2;7.1.1.2. Asset management;215
8.7.1.1.3;7.1.1.3. Mergers and acquisitions advisory services;216
8.7.1.1.4;7.1.1.4. Facilitation of arbitrage;216
8.7.1.1.5;7.1.1.5. Brokerage services;216
8.7.1.1.6;7.1.1.6. Market making;216
8.7.1.2;7.1.2. Structure of Investment Banks;216
8.7.1.3;7.1.3. Activities of Investment Banking;217
8.7.1.3.1;7.1.3.1. Securities underwriting;217
8.7.1.3.2;7.1.3.2. Equity underwriting;218
8.7.1.3.3;7.1.3.3. Methods of IPO pricing;218
8.7.1.3.4;7.1.3.4. Stabilization activities;219
8.7.1.3.5;7.1.3.5. Compensation for underwriting;219
8.7.1.3.6;7.1.3.6. Debt instruments underwriting;220
8.7.1.3.6.1;7.1.3.6.1. Process of competitive sales;220
8.7.1.3.6.2;7.1.3.6.2. Process of negotiated sales;220
8.7.1.3.6.3;7.1.3.6.3. Private placements;221
8.7.1.4;7.1.4. Investment Bank Participation in Financial Markets;221
8.7.1.5;7.1.5. Regulation of Securities Industry;221
8.7.1.6;7.1.6. Risk in Investment Banking;222
8.7.1.7;7.1.7. Challenges for Investment Banks;222
8.7.1.8;7.1.8. Global Investment Banking Statistics;223
8.7.1.8.1;7.1.8.1. Emerging markets;224
8.7.1.9;7.1.9. Role of Investment Banks in the Global Economic Crisis;224
8.7.2;7.2. Finance Companies;225
8.7.2.1;7.2.1. Types of Finance Companies;225
8.7.2.1.1;7.2.1.1. Consumer finance companies;225
8.7.2.1.2;7.2.1.2. Commercial finance companies;225
8.7.2.1.3;7.2.1.3. Sales finance companies;226
8.7.2.1.4;7.2.1.4. Captive finance companies;226
8.7.2.2;7.2.2. Assets and Liabilities of Finance Companies;226
8.7.2.3;7.2.3. Risk of Finance Companies;226
8.7.3;7.3. Summary;227
8.7.4;Questions for Discussion;228
8.7.5;References;228
8.8;Chapter 8: Mutual Funds, Insurance, and Pension Funds;230
8.8.1;8.1. Mutual Funds;230
8.8.1.1;8.1.1. Introduction;230
8.8.1.2;8.1.2. Organization of Mutual Funds;230
8.8.1.3;8.1.3. Stakeholders of Mutual Funds;230
8.8.1.3.1;8.1.3.1. Shareholders;230
8.8.1.3.2;8.1.3.2. Board of directors;230
8.8.1.3.3;8.1.3.3. Sponsors;231
8.8.1.3.4;8.1.3.4. Advisers;231
8.8.1.3.5;8.1.3.5. Administrators;231
8.8.1.3.6;8.1.3.6. Underwriters;231
8.8.1.3.7;8.1.3.7. Transfer agents;231
8.8.1.4;8.1.4. Key Features of Mutual Funds;232
8.8.1.5;8.1.5. Classification of Mutual Funds;232
8.8.1.5.1;8.1.5.1. Open-ended funds;232
8.8.1.5.2;8.1.5.2. Closed-end funds;232
8.8.1.5.3;8.1.5.3. Unit investment trusts;233
8.8.1.6;8.1.6. Sources of Revenue for Investors in a Mutual Fund;233
8.8.1.7;8.1.7. Mutual Fund Expenses and Load Fees;233
8.8.1.8;8.1.8. Regulation of Mutual funds;234
8.8.1.9;8.1.9. Categories of Mutual Funds;235
8.8.1.9.1;8.1.9.1. Stock funds;235
8.8.1.9.2;8.1.9.2. Bond funds;235
8.8.1.9.3;8.1.9.3. Money market funds;235
8.8.1.9.4;8.1.9.4. Hybrid funds;236
8.8.1.9.5;8.1.9.5. Active/index funds;236
8.8.1.10;8.1.10. Other Types of Funds;236
8.8.1.10.1;8.1.10.1. Exchange-traded funds;236
8.8.1.10.2;8.1.10.2. Venture capital funds;237
8.8.1.10.3;8.1.10.3. Private equity funds;238
8.8.1.10.4;8.1.10.4. Hedge funds;238
8.8.1.10.5;8.1.10.5. Real estate investment trusts;239
8.8.1.11;8.1.11. Mutual Fund Industry Trends;239
8.8.1.12;8.1.12. Challenges Faced by the Mutual Fund Industry;241
8.8.1.13;8.1.13. Participation of Mutual Funds in Financial Markets;241
8.8.2;8.2. Insurance;242
8.8.2.1;8.2.1. Introduction;242
8.8.2.2;8.2.2. Major Types of Insurance;243
8.8.2.2.1;8.2.2.1. Life insurance;243
8.8.2.2.1.1;8.2.2.1.1. Term life insurance;243
8.8.2.2.1.2;8.2.2.1.2. Permanent life insurance;244
8.8.2.2.1.3;8.2.2.1.3. Group life insurance;244
8.8.2.2.1.4;8.2.2.1.4. Credit life insurance;244
8.8.2.2.1.5;8.2.2.1.5. Other life insurance products;245
8.8.2.2.1.5.1;8.2.2.1.5.1. Annuity;245
8.8.2.2.1.5.2;8.2.2.1.5.2. Pension plans;245
8.8.2.2.2;8.2.2.2. Property and casualty insurance;245
8.8.2.2.2.1;8.2.2.2.1. Major products of PC insurance;245
8.8.2.2.3;8.2.2.3. Other classifications;246
8.8.2.2.3.1;8.2.2.3.1. Health insurance;246
8.8.2.2.3.2;8.2.2.3.2. Business insurance;246
8.8.2.2.3.3;8.2.2.3.3. Bond insurance;247
8.8.2.2.3.4;8.2.2.3.4. Mortgage insurance;247
8.8.2.3;8.2.3. Underwriting Cycle;247
8.8.2.4;8.2.4. Insurance Pricing;247
8.8.2.5;8.2.5. Distribution Channels;248
8.8.2.6;8.2.6. Regulation;248
8.8.2.7;8.2.7. Risk Management in Insurance;249
8.8.2.7.1;8.2.7.1. Types of risk;249
8.8.2.7.1.1;8.2.7.1.1. Underwriting risk;249
8.8.2.7.1.2;8.2.7.1.2. Catastrophe risk;249
8.8.2.7.1.3;8.2.7.1.3. Longevity and mortality risk;249
8.8.2.7.1.4;8.2.7.1.4. Market risk;249
8.8.2.7.1.5;8.2.7.1.5. Downgrade risk;250
8.8.2.7.1.6;8.2.7.1.6. Regulatory risk;250
8.8.2.7.2;8.2.7.2. Risk measurement in insurance;250
8.8.2.7.3;8.2.7.3. Risk mitigation strategies in insurance;251
8.8.2.7.3.1;8.2.7.3.1. Internal measures;251
8.8.2.7.3.2;8.2.7.3.2. Reinsurance;251
8.8.2.7.3.3;8.2.7.3.3. Financial market instruments;251
8.8.2.7.3.4;8.2.7.3.4. Letters of credit;251
8.8.2.7.3.5;8.2.7.3.5. Increased capital and contingent capital;251
8.8.2.7.4;8.2.7.4. Sources and uses of funds by insurance companies;251
8.8.2.7.5;8.2.7.5. Valuation of insurance companies;252
8.8.2.7.5.1;8.2.7.5.1. Underwriting leverage;253
8.8.2.7.5.2;8.2.7.5.2. Investment yield;253
8.8.2.7.5.3;8.2.7.5.3. Investment return;253
8.8.2.7.5.4;8.2.7.5.4. Growth;253
8.8.2.7.5.5;8.2.7.5.5. Risk ratios;253
8.8.2.7.6;8.2.7.6. Participation of life insurance companies in financial markets;253
8.8.2.7.7;8.2.7.7. Global insurance market trends;253
8.8.3;8.3. Pension Funds;256
8.8.3.1;8.3.1. Introduction;256
8.8.3.2;8.3.2. Types of Pension Plans;256
8.8.3.2.1;8.3.2.1. Public pension and private pension plans;256
8.8.3.2.2;8.3.2.2. Occupational and personal pension plans;256
8.8.3.2.3;8.3.2.3. Defined contribution and defined benefit occupational plans;256
8.8.3.2.4;8.3.2.4. Protected and unprotected pension plans;257
8.8.3.2.5;8.3.2.5. Funded pension plans versus unfunded pension plans;257
8.8.3.2.6;8.3.2.6. Pension funds versus pension contracts;257
8.8.3.3;8.3.3. Pension Fund Classification;257
8.8.3.4;8.3.4. Types of Private Pension Funds;258
8.8.3.5;8.3.5. Key Features of Pension Funds;258
8.8.3.6;8.3.6. Challenges Faced by the Global Pension Fund Industry;258
8.8.3.7;8.3.7. Risk in Pension Funds;259
8.8.3.8;8.3.8. Governance Structure of Pension Funds;260
8.8.3.9;8.3.9. Participation of Pension Funds in Financial Markets;260
8.8.3.10;8.3.10. Regulation of Pension Funds;260
8.8.3.11;8.3.11. Global Pension Fund Trends;261
8.8.4;8.4. Summary;263
8.8.5;Questions for Discussion;264
8.8.6;References;264
8.9;Chapter 9: Private Equity and Hedge Funds;266
8.9.1;9.1. Private Equity;266
8.9.1.1;9.1.1. Introduction;266
8.9.1.2;9.1.2. Strategies of Private Equity Firms;267
8.9.1.3;9.1.3. Organization Structure of Private Equity Funds;267
8.9.1.3.1;9.1.3.1. Exit strategy;268
8.9.1.4;9.1.4. Types of Private Equity Funds;268
8.9.1.4.1;9.1.4.1. Leveraged buyout funds;269
8.9.1.4.2;9.1.4.2. Venture capital funds;269
8.9.1.4.3;9.1.4.3. Growth equity funds;269
8.9.1.4.4;9.1.4.4. Special situation funds;269
8.9.1.5;9.1.5. Determinants of Private Equity;269
8.9.1.6;9.1.6. Private Equity Market Trends;269
8.9.1.7;9.1.7. Regulation;270
8.9.1.8;9.1.8. Challenges;270
8.9.2;9.2. Hedge Funds;271
8.9.2.1;9.2.1. Introduction;271
8.9.2.2;9.2.2. Market Trends;271
8.9.2.3;9.2.3. Structure of Hedge Funds;272
8.9.2.4;9.2.4. Difference between Mutual Funds and Hedge Funds;273
8.9.2.5;9.2.5. Regulation;273
8.9.2.6;9.2.6. Hedge Fund Strategies;273
8.9.2.6.1;9.2.6.1. Equity long strategy;274
8.9.2.6.2;9.2.6.2. Fixed income strategy;274
8.9.2.6.3;9.2.6.3. Convertible arbitrage strategy;274
8.9.2.6.4;9.2.6.4. Fund of funds strategy;275
8.9.2.6.5;9.2.6.5. Investments in distressed securities;275
8.9.2.6.6;9.2.6.6. Global macro strategy;275
8.9.2.6.7;9.2.6.7. Merger arbitrage strategy;275
8.9.2.6.8;9.2.6.8. Relative value arbitrage;275
8.9.2.6.9;9.2.6.9. Managed futures strategy;276
8.9.2.7;9.2.7. Challenges;276
8.9.3;9.3. Summary;276
8.9.4;Questions for Discussion;277
8.9.5;References;277
8.10;Chapter 10: Islamic Influence;278
8.10.1;10.1. Introduction;278
8.10.2;10.2. Features of Islamic Finance;278
8.10.3;10.3. Relevance of Islamic Finance in the Global Economy;279
8.10.4;10.4. Challenges;279
8.10.5;10.5. Regulation;279
8.10.6;10.6. Financing Methods in Islamic Finance;280
8.10.6.1;10.6.1. Fixed Claim Instruments;280
8.10.6.1.1;10.6.1.1. Murabaha (cost plus financing);280
8.10.6.1.2;10.6.1.2. Ijara;280
8.10.6.1.2.1;10.6.1.2.1. Operating lease ( operating ijara);280
8.10.6.1.2.2;10.6.1.2.2. Ijara wa iqtina ( lease and ownership);280
8.10.6.1.2.3;10.6.1.2.3. Ijara mawsoofa bil thimma ( forward lease);281
8.10.6.1.3;10.6.1.3. Mukarada;281
8.10.6.1.4;10.6.1.4. Salam (forward contract);281
8.10.6.1.5;10.6.1.5. Istisna;281
8.10.6.1.6;10.6.1.6. Sukuk;281
8.10.6.1.6.1;10.6.1.6.1. Differentiating sukuk from conventional bonds ;281
8.10.6.1.6.2;10.6.1.6.2. Islamic financing through sukuk;282
8.10.6.1.6.3;10.6.1.6.3. Sukuk market ;282
8.10.6.2;10.6.2. Equity-like Instruments;283
8.10.6.2.1;10.6.2.1. Mudarabah (profit sharing);283
8.10.6.2.2;10.6.2.2. Musharakah (joint venture);283
8.10.6.2.2.1;10.6.2.2.1. Comparison of mudarabah and musharakah;284
8.10.6.3;10.6.3. Investment Funds;284
8.10.7;10.7. Models Used in Islamic Banks;284
8.10.8;10.8. Risk in Islamic;284
8.10.8.1;10.8.1. Different Types of Risk in Islamic Finance;284
8.10.8.1.1;10.8.1.1. Credit risk;284
8.10.8.1.2;10.8.1.2. Benchmark risk;285
8.10.8.1.3;10.8.1.3. Liquidity risk;285
8.10.8.1.4;10.8.1.4. Operational risk;285
8.10.8.1.5;10.8.1.5. Legal risk;285
8.10.8.1.6;10.8.1.6. Fiduciary risk;285
8.10.8.1.7;10.8.1.7. Counterparty risk;285
8.10.8.2;10.8.2. Risk Management in Islamic Financial Institutions;286
8.10.9;10.9. Takaful ;286
8.10.9.1;10.9.1. Working of General Takaful ;286
8.10.9.2;10.9.2. Difference between Conventional Insurance and Takaful ;286
8.10.9.3;10.9.3. Models of Takaful ;287
8.10.9.3.1;10.9.3.1. Al mudharabah model;287
8.10.9.3.2;10.9.3.2. Al wakala model;287
8.10.9.4;10.9.4. Other Models;287
8.10.9.4.1;10.9.4.1. Cooperative insurance (ta’awuni model);287
8.10.9.4.2;10.9.4.2. Nonprofit model;288
8.10.10;10.10. Summary;288
8.10.11;Questions for Discussion;288
8.10.12;References;288
8.11;Chapter 11: Consolidations in Financial Institutions and Markets;290
8.11.1;11.1. Introduction;290
8.11.2;11.2. Megamergers and Acquisitions in the Banking and Other Finance Sectors;291
8.11.3;11.3. Consolidation in the Insurance Sector;293
8.11.4;11.4. Stock Market Mergers;294
8.11.5;11.5. Summary;295
8.11.6;Questions for Discussion;295
8.11.7;References;295
9;Part: B;296
9.1;Cases on Universal Banking;298
9.1.1;1.1. Bank of America;298
9.1.1.1;1.1.1. Major Divisions;298
9.1.1.2;1.1.2. Assets and Liabilities of Bank of America;300
9.1.1.3;1.1.3. Strategy of Bank of America;300
9.1.1.3.1;1.1.3.1. Focus on small, medium, and large companies;301
9.1.1.4;1.1.4. Corporate Social Responsibility Activities;302
9.1.1.5;1.1.5. Growth through Mergers and Acquisitions;302
9.1.1.6;1.1.6. Risk Management at Bank of America;303
9.1.1.7;References;305
9.1.2;1.2. JPMorgan Chase and Company;307
9.1.2.1;1.2.1. Business Divisions;307
9.1.2.1.1;1.2.1.1. Consumer and Community Banking;307
9.1.2.1.2;1.2.1.2. Corporate and Investment Banking;308
9.1.2.1.3;1.2.1.3. Commercial Banking;309
9.1.2.1.4;1.2.1.4. Asset Management;309
9.1.2.2;1.2.2. Corporate Social Responsibility Activities;309
9.1.2.3;1.2.3. Capital Strategy;310
9.1.2.4;1.2.4. Acquisitions by JPMorgan Chase Bank;310
9.1.2.4.1;1.2.4.1. JPMorgan and Chase Manhattan merger;311
9.1.2.4.2;1.2.4.2. Merger of Bank One with JPMorgan Chase;311
9.1.2.5;1.2.5. Risk Management at JPMorgan Chase;311
9.1.2.6;References;313
9.1.3;1.3. Citigroup;314
9.1.3.1;1.3.1. Major Achievements and Milestones;314
9.1.3.2;1.3.2. Structure of Citigroup;315
9.1.3.2.1;1.3.2.1. Global Consumer Banking;315
9.1.3.2.1.1;1.3.2.1.1. Retail banking;315
9.1.3.2.1.2;1.3.2.1.2. Credit cards;316
9.1.3.2.1.3;1.3.2.1.3. Citi Retail Services;316
9.1.3.2.1.4;1.3.2.1.4. Citi Commercial Bank;316
9.1.3.2.1.5;1.3.2.1.5. CitiMortgage;316
9.1.3.2.2;1.3.2.2. Citi’s Institutional Clients Group;316
9.1.3.2.2.1;1.3.2.2.1. Corporate and investment banking;316
9.1.3.2.2.2;1.3.2.2.2. Citi Markets;317
9.1.3.2.2.3;1.3.2.2.3. Citi Private Bank;317
9.1.3.2.2.4;1.3.2.2.4. Citi Transaction Services;317
9.1.3.2.3;1.3.2.3. Citi Holdings;318
9.1.3.3;1.3.3. Assets and Liabilities of Citigroup;318
9.1.3.4;1.3.4. Strategy;318
9.1.3.4.1;1.3.4.1. Mergers and acquisitions by Citicorp;319
9.1.3.5;1.3.5. Corporate Social Responsibility Activities;320
9.1.3.6;1.3.6. Risk Management;320
9.1.3.7;References;323
9.1.4;1.4. Barclays;323
9.1.4.1;1.4.1. Business Structure;324
9.1.4.1.1;1.4.1.1. Retail Business and Banking;324
9.1.4.1.2;1.4.1.2. Barclaycards;324
9.1.4.1.3;1.4.1.3. Investment Banking;324
9.1.4.1.4;1.4.1.4. Universal Banking;325
9.1.4.1.5;1.4.1.5. Wealth and Investment Management;325
9.1.4.2;1.4.2. Strategy;325
9.1.4.3;1.4.3. Corporate Social Responsibility Activities;326
9.1.4.4;1.4.4. Risk Management at Barclays;326
9.1.4.5;References;328
9.1.5;1.5. BNP Paribas;329
9.1.5.1;1.5.1. Core Business Divisions;329
9.1.5.1.1;1.5.1.1. Retail Banking;329
9.1.5.1.1.1;1.5.1.1.1. Domestic markets;329
9.1.5.1.1.2;1.5.1.1.2. BNP Paribas Personal Finance;330
9.1.5.1.1.3;1.5.1.1.3. International Retail Banking;330
9.1.5.1.2;1.5.1.2. Investment Solutions;330
9.1.5.1.3;1.5.1.3. Corporate and Investment Banking;331
9.1.5.2;1.5.2. Corporate Social Responsibility Activities;331
9.1.5.3;1.5.3. Strategy;332
9.1.5.4;1.5.4. Risk Management at BNP Paribas;332
9.1.5.5;References;333
9.1.6;1.6. Crédit Agricole Group;334
9.1.6.1;1.6.1. Structure of Crédit Agricole Group;335
9.1.6.1.1;1.6.1.1. Business lines of Crédit Agricole S.A.;335
9.1.6.1.1.1;1.6.1.1.1. Retail banking;335
9.1.6.1.1.1.1;1.6.1.1.1.1. French Retail Banking: Regional Banks;335
9.1.6.1.1.1.2;1.6.1.1.1.2. French Retail Banking: LCL;335
9.1.6.1.1.1.3;1.6.1.1.1.3. International Retail Banking;336
9.1.6.1.1.2;1.6.1.1.2. Specialized business lines;336
9.1.6.1.1.2.1;1.6.1.1.2.1. Crédit Agricole Consumer Finance;336
9.1.6.1.1.2.2;1.6.1.1.2.2. Crédit Agricole Leasing and Factoring;336
9.1.6.1.1.3;1.6.1.1.3. Savings management;336
9.1.6.1.1.3.1;1.6.1.1.3.1. Asset Management, Securities and Investor Services;336
9.1.6.1.1.3.2;1.6.1.1.3.2. Private Banking;337
9.1.6.1.1.4;1.6.1.1.4. Corporate and investment banking;337
9.1.6.1.1.4.1;1.6.1.1.4.1. Subsidiaries of Crédit Agricole;337
9.1.6.2;1.6.2. Corporate Social Responsibility Activities;338
9.1.6.3;1.6.3. Strategy;338
9.1.6.4;1.6.4. Risk Management at Crédit Agricole;339
9.1.6.4.1;1.6.4.1. Credit risk;339
9.1.6.4.2;1.6.4.2. Market risk;339
9.1.6.4.3;References;340
9.1.7;1.7. HSBC;341
9.1.7.1;1.7.1. Business Divisions of HSBC;342
9.1.7.1.1;1.7.1.1. Commercial Banking;342
9.1.7.1.2;1.7.1.2. Global Banking and Markets;342
9.1.7.1.3;1.7.1.3. Private Bank;344
9.1.7.1.4;1.7.1.4. Retail Banking and Wealth Management;345
9.1.7.2;1.7.2. Strategy;345
9.1.7.3;1.7.3. Risk Management at HSBC;346
9.1.7.4;References;347
9.1.8;1.8. Industrial and Commercial Bank of China;348
9.1.8.1;1.8.1. Business Segments;348
9.1.8.1.1;1.8.1.1. Personal Banking;348
9.1.8.1.2;1.8.1.2. Corporate Banking;349
9.1.8.1.3;1.8.1.3. E-banking;350
9.1.8.1.4;1.8.1.4. International Banking;351
9.1.8.2;1.8.2. Strategy;351
9.1.8.3;1.8.3. Corporate Social Responsibility Activities;351
9.1.8.4;1.8.4. Risk Management;352
9.1.8.5;1.8.5. Capital Management;353
9.1.8.6;References;353
9.1.9;1.9. Deutsche Bank;354
9.1.9.1;1.9.1. Business Divisions;354
9.1.9.1.1;1.9.1.1. Corporate Banking and Securities;354
9.1.9.1.2;1.9.1.2. Global Transaction Banking;355
9.1.9.1.3;1.9.1.3. Asset and Wealth Management;355
9.1.9.1.4;1.9.1.4. Private and Business Clients;356
9.1.9.1.5;1.9.1.5. Non-Core Operations Unit;356
9.1.9.2;1.9.2. Strategy;356
9.1.9.3;1.9.3. Corporate Social Responsibility Activities;357
9.1.9.4;1.9.4. Risk Management at Deutsche Bank;358
9.1.9.5;References;359
9.2;Cases on Mortgage Institutions and Credit Unions;360
9.2.1;2.1. Mortgage Institutions;360
9.2.1.1;2.1.1. Fannie Mae;360
9.2.1.1.1;2.1.1.1. Mortgage securitization;360
9.2.1.1.2;2.1.1.2. Business segments;361
9.2.1.1.2.1;2.1.1.2.1. Rent services;362
9.2.1.1.2.2;2.1.1.2.2. Buy services;362
9.2.1.1.2.3;2.1.1.2.3. Refinance services;362
9.2.1.1.2.4;2.1.1.2.4. Modify services;363
9.2.1.1.2.5;2.1.1.2.5. Avoid foreclosure services;363
9.2.1.1.3;2.1.1.3. Strategy;363
9.2.1.1.4;2.1.1.4. Risk management;364
9.2.1.1.5;References;365
9.2.1.2;2.1.2. Freddie Mac;366
9.2.1.2.1;2.1.2.1. Business divisions;366
9.2.1.2.1.1;2.1.2.1.1. Single-Family Credit Guarantee;366
9.2.1.2.1.2;2.1.2.1.2. Multifamily business;367
9.2.1.2.1.3;2.1.2.1.3. Investments;367
9.2.1.2.2;2.1.2.2. Strategy;367
9.2.1.2.3;2.1.2.3. Risk management;367
9.2.1.2.4;References;369
9.2.1.3;2.1.3. Ginnie Mae;370
9.2.1.3.1;2.1.3.1. Major programs of Ginnie Mae;370
9.2.1.3.2;2.1.3.2. Products;371
9.2.1.3.3;2.1.3.3. Risk management;371
9.2.1.3.4;References;372
9.2.2;2.2. Thrift Institutions—Credit Unions;372
9.2.2.1;2.2.1. Navy Federal Credit Union;372
9.2.2.1.1;2.2.1.1. Products and services;372
9.2.2.1.1.1;2.2.1.1.1. Loans;372
9.2.2.1.1.2;2.2.1.1.2. Checking and savings services;373
9.2.2.1.1.3;2.2.1.1.3. Credit cards;373
9.2.2.1.1.4;2.2.1.1.4. Online and mobile banking;373
9.2.2.1.1.5;2.2.1.1.5. Business services;373
9.2.2.1.1.6;2.2.1.1.6. Investment and insurance;373
9.2.2.1.1.7;References;374
9.2.2.2;2.2.2. State Employees’ Credit Union;374
9.2.2.2.1;2.2.2.1. Products and services;374
9.2.2.2.1.1;2.2.2.1.1. Loans;374
9.2.2.2.1.2;2.2.2.1.2. Mortgages;375
9.2.2.2.1.3;2.2.2.1.3. Cards and accounts;375
9.2.2.2.1.4;2.2.2.1.4. Estates, insurance, investments, and trusts;375
9.2.2.2.1.5;2.2.2.1.5. Services;376
9.2.2.2.1.6;References;376
9.2.2.3;2.2.3. Pentagon Federal Credit Union;376
9.2.2.3.1;2.2.3.1. Products and services;376
9.2.2.3.1.1;2.2.3.1.1. Credit cards;376
9.2.2.3.1.2;2.2.3.1.2. Loans;376
9.2.2.3.1.3;2.2.3.1.3. Checking and savings accounts;377
9.2.2.3.1.4;2.2.3.1.4. Mortgages;377
9.2.2.3.1.5;References;377
9.3;Cases on Investment Banks;378
9.3.1;3.1. Investment Banks;378
9.3.1.1;3.1.1. Credit Suisse;378
9.3.1.2;3.1.2. Business Divisions;378
9.3.1.2.1;3.1.2.1. Private Banking and Wealth Management;378
9.3.1.2.2;3.1.2.2. Investment Banking;379
9.3.1.3;3.1.3. Products and Services;379
9.3.1.3.1;3.1.3.1. Investment banking products and services;379
9.3.1.3.2;3.1.3.2. Global securities;379
9.3.1.4;3.1.4. Strategy;380
9.3.1.4.1;3.1.4.1. Liquidity and funding strategy;382
9.3.1.4.2;3.1.4.2. Capital management strategy;382
9.3.1.5;3.1.5. Risk Management;382
9.3.1.6;3.1.6. Corporate Social Responsibility Activities;384
9.3.1.7;References;385
9.3.2;3.2. Goldman Sachs Group;385
9.3.2.1;3.2.1. Major Divisions;385
9.3.2.1.1;3.2.1.1. Investment banking;386
9.3.2.1.1.1;3.2.1.1.1. Investment Banking division;386
9.3.2.1.1.2;3.2.1.1.2. Financing Group;387
9.3.2.1.1.3;3.2.1.1.3. Industrial sectors;388
9.3.2.1.2;3.2.1.2. Institutional Client Services;388
9.3.2.1.2.1;3.2.1.2.1. Securities Sales and Trading;388
9.3.2.1.2.2;3.2.1.2.2. Prime Brokerage Group;389
9.3.2.1.2.3;3.2.1.2.3. Securities Clearing Services;389
9.3.2.1.2.4;3.2.1.2.4. Securities products and business groups;389
9.3.2.1.3;3.2.1.3. Investing and lending;390
9.3.2.1.4;3.2.1.4. Investment management;390
9.3.2.1.5;3.2.1.5. Research;391
9.3.2.2;3.2.2. Strategy;391
9.3.2.3;3.2.3. Corporate Social Responsibility Activities;392
9.3.2.4;3.2.4. Funding Sources;392
9.3.2.5;3.2.5. Capital Management;392
9.3.2.6;3.2.6. Risk Management;392
9.3.2.7;References;395
9.3.3;3.3. Morgan Stanley;395
9.3.3.1;3.3.1. Business Segments;395
9.3.3.1.1;3.3.1.1. Institutional Securities;396
9.3.3.1.1.1;3.3.1.1.1. Investment banking and corporate lending activities;397
9.3.3.1.1.2;3.3.1.1.2. Sales and trading activities;397
9.3.3.1.2;3.3.1.2. Global Wealth Management Group;398
9.3.3.1.3;3.3.1.3. Asset Management;398
9.3.3.2;3.3.2. Strategy;399
9.3.3.3;3.3.3. Funding Management;399
9.3.3.4;3.3.4. Capital Management;399
9.3.3.5;3.3.5. Risk Management;399
9.3.3.6;3.3.6. Corporate Social Responsibility Activities;401
9.3.3.7;References;402
9.3.4;3.4. UBS Group;402
9.3.4.1;3.4.1. Business Divisions;403
9.3.4.1.1;3.4.1.1. Wealth Management division;403
9.3.4.1.2;3.4.1.2. Wealth Management Americas;404
9.3.4.1.3;3.4.1.3. Investment Banking division;404
9.3.4.1.4;3.4.1.4. Global Asset Management;405
9.3.4.1.5;3.4.1.5. Retail and Corporate division;406
9.3.4.1.6;3.4.1.6. Corporate Center;406
9.3.4.2;3.4.2. Strategy of UBS Group;406
9.3.4.3;3.4.3. Risk Management;407
9.3.4.4;3.4.4. Corporate Social Responsibility Activities;408
9.3.4.5;References;409
9.4;Cases on Investment Management Companies;410
9.4.1;4.1. Introduction;410
9.4.2;4.2. The Vanguard Group;410
9.4.2.1;4.2.1. Different Classes of Mutual Funds;411
9.4.2.1.1;4.2.1.1. Money market mutual funds;411
9.4.2.1.2;4.2.1.2. All in one funds;411
9.4.2.1.3;4.2.1.3. Bond market mutual funds;412
9.4.2.1.4;4.2.1.4. Stock funds;412
9.4.2.1.5;4.2.1.5. Balanced funds;412
9.4.2.1.6;4.2.1.6. International funds;413
9.4.2.1.7;4.2.1.7. Index and active funds;413
9.4.2.1.8;4.2.1.8. Exchange-traded funds;413
9.4.3;4.3. American Funds;414
9.4.3.1;4.3.1. Different Funds;414
9.4.4;4.4. Fidelity Funds;415
9.4.4.1;4.4.1. Businesses;415
9.4.4.1.1;4.4.1.1. Asset management;415
9.4.4.1.2;4.4.1.2. Personal investing;415
9.4.4.1.2.1;4.4.1.2.1. ETFs;415
9.4.4.1.2.2;4.4.1.2.2. Fidelity trade equity index and ETF options;416
9.4.4.1.2.3;4.4.1.2.3. Retirement investments;416
9.4.4.1.3;4.4.1.3. Institutional services;417
9.4.4.2;4.4.2. Investment Products;418
9.4.4.2.1;4.4.2.1. Mutual funds;418
9.4.4.2.2;4.4.2.2. Types of mutual funds;418
9.4.4.2.2.1;4.4.2.2.1. Stock mutual funds;419
9.4.4.2.2.2;4.4.2.2.2. Index funds;419
9.4.4.2.2.3;4.4.2.2.3. Asset allocation funds;419
9.4.4.2.2.4;4.4.2.2.4. Fixed-income funds;420
9.4.4.3;4.4.3. Fidelity Advisory Funds;420
9.4.5;4.5. T. Rowe Price;425
9.4.5.1;4.5.1. Business Activities;425
9.4.5.1.1;4.5.1.1. Mutual funds;425
9.4.5.1.2;4.5.1.2. Notable funds;426
9.4.5.1.3;4.5.1.3. Retirement investment products;426
9.4.5.1.4;4.5.1.4. Planning and research;427
9.4.6;4.6. PIMCO;428
9.4.6.1;4.6.1. Investment Strategies;428
9.4.6.1.1;4.6.1.1. Short duration;428
9.4.6.1.2;4.6.1.2. Fixed income;428
9.4.6.1.3;4.6.1.3. Equity;429
9.4.6.1.4;4.6.1.4. Real estate;429
9.4.6.1.5;4.6.1.5. Currency;429
9.4.6.1.6;4.6.1.6. Alternatives;429
9.4.6.1.7;4.6.1.7. Asset allocation;430
9.4.6.2;4.6.2. Mutual Funds;430
9.4.6.3;4.6.3. Featured Funds;430
9.4.6.4;4.6.4. Exchange-Traded Funds;431
9.4.6.5;4.6.5. Managed Accounts;433
9.4.6.5.1;4.6.5.1. Core products;433
9.4.6.5.2;4.6.5.2. Municipal products;433
9.4.7;4.7. Franklin Templeton;433
9.4.7.1;4.7.1. Types of Investment Management and Related Services;434
9.4.7.1.1;4.7.1.1. Investment management services;434
9.4.7.1.2;4.7.1.2. Sales and distribution;435
9.4.7.1.3;4.7.1.3. Shareholder and transfer agency services;435
9.4.7.1.4;4.7.1.4. High-net-worth investment management services;435
9.4.7.1.5;4.7.1.5. Institutional investment management;435
9.4.7.1.6;4.7.1.6. Trust and custody services;436
9.4.7.1.7;4.7.1.7. Management of alternate investment products;436
9.4.7.1.8;4.7.1.8. Private banking;436
9.4.7.2;4.7.2. Investment Products;436
9.4.7.3;4.7.3. Types of Risk;437
9.4.8;4.8. BlackRock;438
9.4.8.1;4.8.1. Strategy;438
9.4.8.1.1;4.8.1.1. Investment strategies;438
9.4.8.1.2;4.8.1.2. Alpha strategies;438
9.4.8.1.3;4.8.1.3. Beta strategies;439
9.4.8.1.4;4.8.1.4. Multi-asset strategies;439
9.4.8.1.5;4.8.1.5. Alternate strategies;439
9.4.8.2;4.8.2. Products and Services;440
9.4.8.2.1;4.8.2.1. Asset management for individuals;440
9.4.8.2.2;4.8.2.2. Asset management for institutions;440
9.4.8.2.3;4.8.2.3. Global Retail;440
9.4.8.2.4;4.8.2.4. BlackRock Solutions;440
9.4.8.2.5;References;441
9.5;Cases on Insurance Companies;444
9.5.1;5.1. Trends in THE Insurance Industry;444
9.5.1.1;5.1.1. Specific Risk in Insurance;445
9.5.2;5.2. Japan Post Insurance CO.;445
9.5.3;5.3. Berkshire Hathaway;447
9.5.3.1;5.3.1. Insurance;447
9.5.3.2;5.3.2. Government Employees Insurance Company;447
9.5.3.2.1;5.3.2.1. Products offered by GEICO;448
9.5.3.2.1.1;5.3.2.1.1. Auto insurance;448
9.5.3.2.1.2;5.3.2.1.2. Motorcycle insurance;448
9.5.3.2.1.3;5.3.2.1.3. Umbrella insurance;448
9.5.3.2.1.4;5.3.2.1.4. Homeowner’s insurance;448
9.5.3.2.1.5;5.3.2.1.5. Other insurance;448
9.5.3.3;5.3.3. General Reinsurance Corporation;449
9.5.3.3.1;5.3.3.1. Reinsurance solutions;449
9.5.3.3.1.1;5.3.3.1.1. Life/health solutions;449
9.5.3.3.1.2;5.3.3.1.2. Property/casualty insurance;450
9.5.3.4;5.3.4. BHRG and BHPG;451
9.5.4;5.4. AXA S.A.;452
9.5.4.1;5.4.1. Regulatory Requirements;453
9.5.4.2;5.4.2. Divisions;453
9.5.4.2.1;5.4.2.1. L&S segment;453
9.5.4.2.2;5.4.2.2. P&C insurance;454
9.5.4.2.3;5.4.2.3. International insurance segment;454
9.5.4.2.4;5.4.2.4. Asset management;455
9.5.4.2.5;5.4.2.5. Banking segments;455
9.5.4.3;5.4.3. Risk Management;455
9.5.5;5.5. ALLIANZ;458
9.5.5.1;5.5.1. Products and Solutions;459
9.5.5.1.1;5.5.1.1. Private insurance;459
9.5.5.1.2;5.5.1.2. Business insurance;459
9.5.5.1.3;5.5.1.3. Asset management;460
9.5.5.1.4;5.5.1.4. Global division lines;460
9.5.5.1.5;5.5.1.5. Global assistance and services;461
9.5.5.2;5.5.2. Risk Management;461
9.5.5.3;5.5.3. Corporate Social Responsibility Activities;461
9.5.6;5.6. Generali Group;462
9.5.6.1;5.6.1. Strategy for Growth;463
9.5.6.2;5.6.2. Products and Services;465
9.5.6.2.1;5.6.2.1. Major groups;465
9.5.7;5.7. Nippon Life Insurance;465
9.5.7.1;5.7.1. Business Structure;466
9.5.7.1.1;5.7.1.1. Insurance and related business;466
9.5.7.1.2;5.7.1.2. Asset management;466
9.5.7.1.3;5.7.1.3. General affairs and related operations;466
9.5.7.2;5.7.2. Products and Services;466
9.5.7.2.1;5.7.2.1. Major strategic investments;467
9.5.8;5.8. Munich Reinsurance;467
9.5.8.1;5.8.1. Business Divisions;468
9.5.8.1.1;5.8.1.1. Reinsurance;468
9.5.8.1.1.1;5.8.1.1.1. Nonlife reinsurance;468
9.5.8.1.1.2;5.8.1.1.2. Life reinsurance;469
9.5.8.1.1.3;5.8.1.1.3. Health reinsurance;469
9.5.8.1.1.4;5.8.1.1.4. Risk solutions;469
9.5.8.1.1.5;5.8.1.1.5. Claims;469
9.5.8.1.2;5.8.1.2. Primary insurance;469
9.5.8.1.3;5.8.1.3. Munich Re Health;470
9.5.8.1.4;5.8.1.4. Asset management;470
9.5.8.2;5.8.2. Strategy;470
9.5.8.3;5.8.3. Risk Management;471
9.5.9;5.9. American International Group;473
9.5.9.1;5.9.1. AIG Property Casualty;474
9.5.9.1.1;5.9.1.1. Commercial products;474
9.5.9.1.2;5.9.1.2. Consumer products;474
9.5.9.2;5.9.2. AIG Life and Retirement;474
9.5.9.2.1;5.9.2.1. Life insurance products;475
9.5.9.2.2;5.9.2.2. Retirement Services;475
9.5.9.2.3;5.9.2.3. Distribution network;476
9.5.9.3;5.9.3. Other Operations;476
9.5.9.4;5.9.4. Strategy;476
9.5.9.5;5.9.5. Risk Management;477
9.5.9.6;5.9.6. Corporate Social Responsibility Activities;478
9.5.10;5.10. MeTLife;479
9.5.10.1;5.10.1. Strategy;480
9.5.11;5.11. China Life Insurance Group;481
9.5.12;5.12. AIA Group;482
9.5.13;5.13. ING;482
9.5.14;5.14. Zurich Insurance Group;483
9.5.15;References;484
9.6;Cases on Pension Funds;486
9.6.1;6.1. Pension Fund Trends;486
9.6.2;6.2. Sovereign Pension Funds;486
9.6.2.1;6.2.1. Government Pension Investment Fund Japan;486
9.6.2.2;6.2.2. Government Pension Fund Norway;487
9.6.2.3;6.2.3. ABP Netherlands;487
9.6.2.3.1;6.2.3.1. Products;488
9.6.2.3.1.1;6.2.3.1.1. ABP Flexible Early Retirement Pension;488
9.6.2.3.1.2;6.2.3.1.2. ABP Retirement Pension;488
9.6.2.3.1.3;6.2.3.1.3. ABP Multi-Option Pension;488
9.6.2.3.1.4;6.2.3.1.4. ABP Incapacity Pension;488
9.6.2.3.1.5;6.2.3.1.5. ABP Surviving Dependents Pension;488
9.6.2.4;6.2.4. National Pension Service OF Korea;489
9.6.2.5;6.2.5. Central Provident Fund Singapore;490
9.6.2.5.1;6.2.5.1. Operations;491
9.6.2.5.1.1;6.2.5.1.1. Retirement schemes;491
9.6.2.5.1.2;6.2.5.1.2. Health care;491
9.6.2.5.1.3;6.2.5.1.3. Homeownership;491
9.6.2.5.1.4;6.2.5.1.4. Workfare;492
9.6.2.6;6.2.6. Canada Pension Plan;493
9.6.2.7;6.2.7. Employees Provident Fund Malaysia;493
9.6.2.8;6.2.8. National Social Security Fund China;494
9.6.2.9;6.2.9. Federal Retirement Thrift US;494
9.6.2.10;6.2.10. California Public Employees Retirement System;496
9.6.2.10.1;6.2.10.1. Programs and services;497
9.6.2.10.2;6.2.10.2. Investments;497
9.6.3;6.3. Corporate Pension Funds;499
9.6.3.1;6.3.1. General Motors Pension Plan;499
9.6.3.2;6.3.2. IBM Pension;500
9.6.3.3;6.3.3. Boeing Company EmployEEment Retirement Plan;501
9.6.3.4;6.3.4. AT&T Pension Plans;502
9.6.3.5;6.3.5. BT Pension Scheme;503
9.6.3.6;6.3.6. General Electric Pension Plans;504
9.6.3.7;References;505
9.7;Cases on Private Equity Firms;508
9.7.1;7.1. Kohlberg Kravis Roberts;508
9.7.1.1;7.1.1. Business Review;508
9.7.1.1.1;7.1.1.1. Private markets;508
9.7.1.1.2;7.1.1.2. Public markets;509
9.7.1.1.3;7.1.1.3. Capital markets and principal activities;510
9.7.1.2;7.1.2. Client and Partner Group;510
9.7.1.2.1;7.1.2.1. Partners;510
9.7.1.2.2;7.1.2.2. KKR mutual funds;510
9.7.1.3;7.1.3. Strategy;510
9.7.1.4;7.1.4. Risk in Business;511
9.7.2;7.2. Blackstone Group;512
9.7.2.1;7.2.1. Businesses of Blackstone;512
9.7.2.1.1;7.2.1.1. Asset management;512
9.7.2.1.1.1;7.2.1.1.1. Private equity;512
9.7.2.1.1.2;7.2.1.1.2. Real estate;513
9.7.2.1.1.3;7.2.1.1.3. Hedge fund solutions;513
9.7.2.1.1.4;7.2.1.1.4. Credit solutions;514
9.7.2.1.1.5;7.2.1.1.5. Tactical Opportunities;514
9.7.2.1.1.6;7.2.1.1.6. Strategic Partners;514
9.7.2.1.2;7.2.1.2. Financial advisory services;514
9.7.2.1.2.1;7.2.1.2.1. Blackstone Advisory Partners;514
9.7.2.1.2.2;7.2.1.2.2. Restructuring and Reorganization;515
9.7.2.1.2.3;7.2.1.2.3. Park Hill Group;515
9.7.3;7.3. Bain Capital;516
9.7.3.1;7.3.1. Bain Capital Private Equity;517
9.7.3.2;7.3.2. Brookside Capital;518
9.7.3.3;7.3.3. Sankaty Advisors;518
9.7.3.4;7.3.4. Bain Capital Ventures;518
9.7.3.5;7.3.5. Absolute Return Capital;518
9.7.4;7.4. Carlyle Group;519
9.7.4.1;7.4.1. Business Segments;519
9.7.4.1.1;7.4.1.1. Corporate Private Equity;519
9.7.4.1.2;7.4.1.2. Real estate;519
9.7.4.1.3;7.4.1.3. Global Market Strategies;520
9.7.4.1.4;7.4.1.4. Global Solutions segment;520
9.7.5;7.5. TPG Capital;521
9.7.5.1;7.5.1. Investment Platforms;521
9.7.5.2;References;522
9.8;Cases on Hedge Funds;524
9.8.1;8.1. Bridgewater Associates;524
9.8.2;8.2. Adage Capital Management;524
9.8.3;8.3. York Capital Management;524
9.8.4;8.4. Graham Capital Management;525
9.8.5;8.5. Pershing Square Capital Management;525
9.8.6;8.6. Man Group;525
9.8.7;8.7. Brevan Howard Asset Management;526
9.8.8;8.8. Och-Ziff Capital Management Group;526
9.8.9;References;526
9.9;Cases on Islamic Banks;528
9.9.1;9.1. Saudi Al Rajhi Bank;528
9.9.2;9.2. Kuwait Finance House;530
9.9.2.1;9.2.1. Risk Management;531
9.9.3;9.3. Dubai Islamic Bank;532
9.9.3.1;9.3.1. Risk Management;533
9.9.4;9.4. Abu Dhabi Islamic Bank;534
9.9.5;9.5. Al Baraka Islamic Bank;536
9.9.6;9.6. Qatar Islamic Bank;537
9.9.7;References;538
9.10;Cases on Sovereign Wealth Funds;540
9.10.1;10.1. Sovereign Wealth Funds;540
9.10.1.1;10.1.1. Government Pension Fund Global — Norway;540
9.10.1.2;10.1.2. SAMA Foreign Holdings — Saudi Arabia;541
9.10.1.3;10.1.3. Abu Dhabi Investment Authority — United Arab Emirates;541
9.10.1.4;10.1.4. China Investment Corporation — China;542
9.10.1.5;10.1.5. State Administration of Foreign Exchange — Hong Kong;542
9.10.1.6;10.1.6. Kuwait Investment Authority — Kuwait;543
9.10.1.7;10.1.7. Hong Kong Monetary Authority — Hong Kong;543
9.10.1.8;10.1.8. GIC Private Limited — Singapore;543
9.10.1.9;10.1.9. Temasek Holdings — Singapore;544
9.10.1.10;10.1.10. Qatar Investment Authority — Qatar;545
9.10.1.11;References;545
10;Index;546
Chapter 1 Strategies and Structures of Financial Institutions
Abstract
A financial sector comprises a set of institutions, instruments, and markets established in the context of a legal and regulatory framework. Financial institutions face challenges for gaining competitive advantage in the context of rapid changes in technological, economic, social, demographic, and regulatory environments. The deep transformation the financial sector is witnessing can be attributed to a number of factors such as technology innovation, deregulation, worldwide consolidation and restructuring, deregulation, and changing demographic profiles. Information technology is the primary force that keeps the financial industry dynamic. The post-economic crisis witnessed a series of policy reforms initiated by regulatory authorities. The global technology trends in the financial industry indicate the relevance of next-generation remote banking solutions, business intelligence, and analytics in transaction monitoring. Financial institutions face much complexity in the types of risks they have to manage. The trends indicate the growing significance of the emerging Asia market, consisting of China, India, and ASEAN countries for growth opportunities in the financial services industry. Keywords Financial institutions Strategic trends Technology trends Reform policy trends Universal banking Digital banking Mobile banking Remote deposit capture Consolidation Emerging markets Corporate governance Shadow banking 1.1 Introduction
Financial institutions basically serve as financial intermediaries between primary saving and borrowing sectors. In the current environment it has become critical for financial institutions to evolve strategies for competitiveness in the context of rapid changes within technological, economic, social, demographic, and regulatory environments. The financial sector encompasses a set of institutions, instruments, and markets as well as the legal and regulatory framework. Globalization, regulatory compliance, risk management, technological innovation, and demographics are the major transformative issues that will determine the growth of the global financial sector. Consolidation and cross-border mergers and acquisitions (M&A) in the context of easing cross-border investment regulations are also visible trends observed in the global financial sector. Technology has transformed products offered by financial institutions into commodities. Technology has transformed the internal operating environment as well as the external market environment. Information technology (IT) is the primary force that keeps the financial industry dynamic. The biggest banking markets by assets are the United States, the United Kingdom, Japan, China, and France. Of these countries, the United States has the largest number of banking institutions in the world. In 2011, there were 6291 commercial banking institutions with 83,209 branches in the United States. In the 1990s, the number of US banking institutions was approximately 12,000. In 2011, the number of savings institutions was 1067.1 US, German, and Japanese banks are dominant both in terms of assets and number of institutions. There are 20 US banks, 16 German banks, and 11 Japanese banks among the top 100 banks.2 1.2 Banking Performance Trends
A McKinsey Global Institute report indicates that during the next 10 years, the growth rate of the global banking industry will exceed that of the gross domestic product (GDP). Experts estimate that the banking industry is likely to more than double its revenues and profits over this period. The shadow banking system around the world had grown to a $67 trillion market by 2011, according to the Financial Stability Board (FSB) Monitoring Report of 2012. According to the FSB report, the global banks sector is forecast to have a value of $136,946.8 billion by 2015, which represents an increase of approximately 34% from 2010. Bank credit is the largest segment of global banking, accounting for 59.7% of the total sector value. Europe accounts for 53% of the global banks’ sector value. In 2010, the global banks industry group had total assets of $101,880.2 billion, representing a compounded annual growth rate (CAGR) of 7.6% during the period 2006-2010. The United States accounts for 11.5% of the global banks sector value. By 2015, the US banks sector is forecasted to have a value of $15.617 billion dollars.3 The Asia Pacific bank sector is forecasted to have a value of $40,669 billion. Currently, China accounts for 47.9% of the Asia Pacific bank sector value,4 and Japan accounts for a further 31.3% of the Asia Pacific sector. In the year 2011, the biggest banks in terms of market capitalization were the Industrial and Commercial Bank of China, China Construction Bank Corporation, HSBC Holdings, and JPMorgan. The industry growth rate of assets of the top 1000 banks was 2.7% in the post-crisis period of 2008-2010, as compared to the double-digit growth witnessed by the sector during the period 2006-2007.5 At the same time, the capital adequacy ratio of the banks registered a growth rate of 3.8% during the period 2007-2010. In the period between 2007 and 2008, the profit before tax of the top 1000 global banks declined by $667 billion.6 The highest growth was registered by Latin American banks whose assets grew at a CAGR of 28.1% during 2007-2010. During the same period, the assets of the banking sectors in Asia Pacific and North America grew at rates of 16.3% and 6.9%, respectively, while the assets of European banks declined at a rate of 3.3%.7 In the post-crisis period, the cost-to-income ratio showed impressive improvement in North America, Europe, and Latin America. This improvement was primarily because of the reduction of operational costs owing to the adoption of the Basel recommendations. According to a McKinsey Quarterly report in 2011, “The state of global banking—in search of a sustainable model,” despite a strong global profit performance in 2010 and the first half of 2011, the return on equity (ROE) of banks in Europe and the United States has still not recovered, particularly in the context of gaps that arise from the new regulatory requirements. The global banking revenues reached a record $3.8 trillion in 2010 compared to $3.5 trillion in 2009. Global banking profits after tax grew to $712 billion in 2010, up from $400 billion in 2009. But 90% of the profit increase was attributable to a decline in provisions for loan losses. In 2010, US and European banking industries had an ROE of just 7% and 7.9%, respectively. Bank revenues in such developing countries as India, Brazil, and China grew by approximately 19.8%, 17.6%, and 13.7%, respectively, during 2010.8 In spite of the economic crisis of 2008, total banking assets are predicted to reach an estimated $163,058 billion in 2017 with a CAGR of 8% over the next five years.9 Table 1.1 highlights the global banking performance trends in terms of profits. Table 1.2 shows the financial position of the global banking industry in terms of loans and deposits, total assets and liabilities during the period 2009-2011. Table 1.1 Global Banking After-Tax Profits (Billions of US Dollars) Year Profits 2000 366 2005 681 2006 802 2007 952 2008 852 2009 549 2010 730 Source: McKinsey Global Banking Pools. The estimated profits realized by banks and nonbanking financial institutions from the provision of banking services to clients. Nonclient driven banking activities such as asset liability management, market making, proprietary trading (the latter two with the exception of Asia Pacific) and banks’ nonbanking activities are excluded. Table 1.2 Global Banking Amounts Outstanding (Billions of US Dollars) Total assets 33,841.4 33,989.1 35,878.1 Loans and deposits 21,664.1 22,083.7 23,303.2 Total liabilities 32,338.9 32,801.6 34,878.7 Source: BIS Quarterly Review, March 2012. 1.3 Strategic Trends
The gap for bank revenue growth is expected to widen between growing markets in emerging markets and saturated developed markets. Banks from the emerging markets will become the growth drivers of the global banking industry. Geographically the regions of biggest potential are China, India, Brazil, and Russia. The most populous nation in the world, China has one of the largest savings rates at 40% of the GDP. Financial institutions have spent billions to acquire stakes in Chinese banks. Chinese markets are characterized by a large savings rate and a dearth of health care and pension funds. With the imposition of more stringent capital adequacy and risk management standards, banks face strains on their traditional business models and operating margins. The financial crisis highlighted the differences that exist between the...
