Financial Institutions Management: A Risk Management Approach, 7th Edition
Anthony Saunders, Marcia Cornett
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THIS IS AN OLD EDITION. FOR THE 8th EDITION, PLEASE PERFORM A NEW SEARCH USING THE FOLLOWING ISBN13: 9780078034800
PRESCRIBED TEXT FOR FINS3630 AT UNSW, SEMESTER 2, 2011
Saunders and Cornett?s Financial Institutions Management: A Risk Management Approach 7/e provides an innovative approach that focuses on managing return and risk in modern financial institutions. The central theme is that the risks faced by financial institutions managers and the methods and markets through which these risks are managed are becoming increasingly similar whether an institution is chartered as a commercial bank, a savings bank, an investment bank, or an insurance company. Although the traditional nature of each sector?s product activity is analyzed, a greater emphasis is placed on new areas of activities such as asset securitization, off-balance-sheet banking, and international banking.
# New discussion of the financial crisis: Discussion of the financial crisis has been added throughout the book. Every chapter now includes new material detailing how the financial crisis affected risk management in financial institutions. Some of the larger changes are detailed below:
# Appendix 1A now describes events leading up to the financial crisis, events occurring at the peak of the crisis, and events associated with the aftermath of the financial crisis, including changes to financial institutions, the impact on U.S. and world economies, federal financial and fiscal rescue efforts, and proposed regulatory changes.
# Chapter 17 includes a discussion of the liquidity crisis experienced by financial institutions during the crisis.
# Chapter 19 includes a discussion of the new deposit insurance coverage and premium rules as well as the FDIC?s attempts to deal with the liquidity crisis.
# Chapter 20 includes a discussion of the TARP Capital Purchase Program and stress tests on the major commercial banks in 2009.
# Chapter 22 through 26 includes discussion of the role of derivative securities in the financial crisis, including the roles of swaps (especially credit default swaps), collateralized mortgage, and collateralized debt obligations.
# Chapter 26 includes a new section on special purpose entities (SPEs) and structured investment vehicles (SIVs), as well as the federal government takeover of Fannie Mae and Freddie Mac.
# New discussions on major firms: Early chapters include discussion of major firms that have been lost or dramatically altered as a result of the financial crisis. This includes the failure of Bear Stearns, Lehman Brothers, and AIG, conversions of Goldman Sachs, Morgan Stanley, GMAC, and CIT Group to bank holding companies, the failure of Primary Reserve Money Market Funds, and the failure of CIT Group.
# New appendix: Appendix 2A has been added that describes the process of financial ratio analysis for financial institutions.
# Proposed regulation changes: Major changes proposed for the regulation of financial institutions are included where appropriate throughout the book.
# New discussion of major scandals: Chapter 5 includes a discussion of major scandals in some hedge funds, including Bernie Madoff Investment Securities and Galleon Group LLC.
# Integrated mini cases: Integrated mini cases have been added to Chapters 9, 10, 12, 22.
# New real world boxes: New boxes highlighting ?Notable Events from the Financial Crisis? have been added to chapters throughout the book.
# New Organization: Chapters 21 and 22 in the previous editions of the text have been combined so that product and geographic expansion are viewed as part of an overall expansion strategy for financial institutions rather than as independent activities.
# A risk approach: Financial Institutions Management uses a risk approach, keeping the first section of the text as an introduction and the last two sections as a risk measurement and risk management summary, respectively.
# Continuing detailed coverage of what?s new: A detailed look at what is new in each of the different sectors of the financial institutions industry is presented in the first six chapters of the text. The continued international coverage is highlighted with a global issues section icon located throughout the text.
# Electronic technology and the Internet: Coverage of electronic technology and the Internet?s impact on financial services is included in Chapter 16. Technological changes occurring over the last decade have changed the way financial institutions offer services to customers, both domestically and overseas. The effect of technology is also referenced in other chapters where relevant.
# Credit risk models: Coverage of credit risk models (including newer models, such as KMV, CreditMetrics, and CreditRisk+) are included in the text.
# The paths of banking: Coverage in the ?Product and Geographic Expansion? chapter continues to explore the increased inroads of banks into the insurance field, the move towards nationwide banking (in the United States), and the rapid growth of foreign banks and other intermediaries in the United States.
# Ethical controversies: In-chapter discussions of the many ethical controversies involving financial institutions (such as those involving commercial banks, investment banks, and mutual funds) exist in most chapters.
# Web questions: Web questions included in the end-of-chapter problems guide the student through Web sites as they collect the requested data. Further, these problems ask the student to evaluate the data collected.
# Chapter Notation online: Chapter Notation has been summarized and posted to the book?s web site (located at www.mhhe.com/saunders7e) by chapter.
# Concept questions: Concept questions, placed throughout each chapter, test students to ensure they have learned what they have read.
# Anthony Saunders is the John M. Schiff Professor of Finance and Chair of the Department of Finance at the Stern School of Business at New York University. Professor Saunders received his Ph.D. from the London School of Economics and has taught both undergraduate- and graduate-level courses at NYU since 1978. Throughout his academic career, his teaching and research have specialised in financial institutions and international banking. He has served as a visiting professor all over the world, including INSEAD, the Stockholm School of Economics, and the University of Melbourne.
Table of Contents
Part I Introduction
Ch. 1 Why Are Financial Institutions Special?
Appendix 1A The Financial Crisis: The Failure of Financial Services Specialness
Appendix 1B Monetary Policy Tools (online)
Ch. 2 Financial Services: Depository Institutions
Appendix 2A Financial Statement Analysis Using a Return on Equity (ROE) Framwork (online)
Appendix 2B Commercial Bank? Financial Statements and Analysis (online)
Appendix 2C Depository Institutions and Their Regulators (online)
Appendix 2D Technology in Commercial Banking (online)
Ch. 3 Financial Services: Insurance
Ch. 4 Financial Services: Securities Brokerage and Investment Banking
Ch. 5 Financial Services: Mutual Funds and Hedge Funds
Ch. 6 Financial Services: Finance Companies
Ch. 7 Risks of Financial Institutions
Part II Measuring Risk
Ch. 8 Interest Rate Risk I
Appendix 8A The Maturity Model (online)
Appendix 8B Term Structure of Interest Rates
Ch. 9 Interest Rate Risk II
Appendix 9A The Basics of Bond Valuation (online)
Appendix 9B Incorporating Convexity into the Duration Model
Ch. 10 Market Risk
Ch. 11 Credit Risk: Individual Loan Risk
Appendix 11A Credit Analysis (online)
Appendix 11B Black-Scholes Option Pricing Model (online)
Ch. 12 Credit Risk: Loan Portfolio and Concentration Risk
Appendix 12A CreditMetrics
Appendix 12B CreditRisk+
Ch. 13 Off-Balance-Sheet Risk
Appendix 13A A Letter of Credit Transaction (online)
Ch. 14 Foreign Exchange Risk
Ch. 15 Sovereign Risk
Appendix 15A Mechanisms for Dealing with Sovereign Risk Exposure
Ch. 16 Technology and Other Operational Risks
Ch. 17 Liquidity Risk
Appendix 17A Sources and Uses of Funds Statement, Bank of America, December 2005 (online)
Part III Managing Risk
Ch. 18 Liability and Liquidity Management
Appendix 18A Federal Reserve Requirement Accounting
Appendix 18B Bankers Acceptances and Commercial Paper as Sources of Financing
Ch. 19 Deposit Insurance and Other Liability Guarantees
Appendix 19A Calculation of Deposit Insurance Premiums
Appendix 19B FDIC Press Releases of Bank Failures
Appendix 19C Deposit Insurance Coverage for Commercial Banks in Various Countries
Ch. 20 Capital Adequacy
Appendix 20A Internal Ratings-Based Approach to Measuring Credit Risk-Adjusted Assets
Ch. 21 Product and Geographic Expansion
Appendix 21A EU and G-10 Countries: Regulatory Treatment of the Mixing of Banking, Securities, and Insurance Activities and the Mixing of Banking and Commerce (online)
Ch. 22 Futures and Forwards
Appendix 22A Microhedging with Futures (online)
Ch. 23 Options, Caps, Floors, and Collars
Appendix 23A Black-Scholes Option Pricing Model (online)
Appendix 23B Microhedging with Options (online)
Ch. 24 Swaps
Appendix 24A Setting Rates on an Interest Rate Swap
Ch. 25 Loan Sales
Ch. 26 Securitization
Appendix 26A Fannie Mae and Freddie Mac Balance Sheets (online)