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Contemporary Financial Intermediation, 2nd Edition

Book Description

Stuart Greenbaum and Anjan Thakor bring a unique analytical approach to the subject of banks and banking in this completely revised and updated new edition. They expand the scope of the typical bank management course by addressing all types of deposit-type financial institutions and by explaining the why of intermediation rather than simply describing institutions, regulations, and market phenomena. This analytic approach strikes at the heart of financial intermediation by explaining why financial intermediaries exist and what they do. Specific regulations, economies, and policies will change, but the underlying philosophical foundations remain the same. This approach enables students to understand the foundational principles and to apply them to whatever context they encounter as professionals.

"This book is the perfect liasion between the microeconomics realm of information economics and the real world of banking and financial intermediation. It supplies a healthy dose of microeconomic theory to fully understand the underlying features of the most common financial instruments used in modern banking practice, all explained thoroughly with down to earth narratives and doable math/game theoretic instruments. It makes a wonderful preview before going on with Freixas text, or at least as its companion."
--Quote referring to first edition from Enrique Fernandez on

* Completely undated edition of a classic banking text
* Online solutions manual, instructor resources, and ppt slides available to instructors on publisher's website
* Authored by experts on financial intermediation theory, only textbook that takes this approach situating banks within microeconomic theory

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright
  5. Dedication
  6. Preface
  7. Acknowledgments
  8. About the Authors
    1. A Friendly Conversation
      1. Introduction
      2. The Conversation: 1991
      3. Follow-Up to the Conversation: 2007
    2. Chapter 1: Basic Concepts
      1. Introduction
      2. Risk Preferences
      3. Diversification
      4. Riskless Arbitrage
      5. Options
      6. Market Efficiency
      7. Market Completeness
      8. Asymmetric Information and Signaling
      9. Agency and Moral Hazard
      10. Time Consistency
      11. Nash Equilibrium
      12. Revision of Beliefs and Bayes Rule
    1. Chapter 2: The Nature and Variety of Financial Intermediation
      1. Glossary of Terms
      2. Introduction
      3. What Are Financial Intermediaries?
      4. The Variety of Financial Intermediaries
      5. Depository Financial Intermediaries
      6. Commercial Banks
      7. Thrifts
      8. Credit Unions
      9. Nondepository Intermediaries
      10. The Role of the Government
      11. Financial Intermediaries on the Periphery
      12. Conclusion
      13. Appendix 2.1 Measurement Distortions and the Balance Sheet
      14. Appendix 2.2 Guide to Federal Reserve Regulations
    2. Chapter 3: The What, How, and Why of Financial Intermediaries
      1. Glossary of Terms
      2. Introduction
      3. Fractional Reserve Banking and the Goldsmith Anecdote
      4. The Evolution of the Primitive Goldsmith Into a Bank
      5. A Model of Banks and Regulation
      6. The Macroeconomic Implications of Fractional Reserve Banking: The Fixed Coefficient Model
      7. Large Financial Intermediaries
      8. How Banks Can Help to Make Nonbank Financial Contracting More Efficient
      9. The Empirical Evidence: Banks Are Special
      10. Ownership Structure of Depository Financial Institutions
      11. The Borrower’s Choice of Finance Source
      12. Conclusion
      13. Appendix 3.1 The Formal Analysis of Large Intermediaries
    1. Chapter 4: Major Risks Faced by Banks
      1. Glossary of Terms
      2. Introduction
      3. The Source of Business Risk
      4. Credit, Interest Rate, and Liquidity Risks
      5. The Term Structure of Interest Rates
      6. Duration
      7. Convexity
      8. Interest Rate Risk
      9. Liquidity Risk
      10. Conclusion
      11. Case Study Eggleston State Bank
      12. Appendix 4.1 Dissipation of Withdrawal Risk Through Diversification
      13. Appendix 4.2 Lender-of-Last-Resort Moral Hazard
    2. Chapter 5: Spot Lending
      1. Glossary of Terms
      2. Introduction
      3. Description of Bank Assets
      4. Types of Bank Loans
      5. What Is Lending?
      6. Loans Versus Securities
      7. Structure of Loan Agreements
      8. Informational Problems in Loan Contracts and the Importance of Loan Performance
      9. Credit Analysis: The Factors
      10. Sources of Credit Information
      11. Analysis of Financial Statements
      12. Loan Covenants
      13. Conclusion
      14. Case Study Indiana Building Supplies, Inc.
      15. Appendix 5.1 Trends in Credit Analysis
    3. Chapter 6: Further Issues in Bank Lending
      1. Glossary of Terms
      2. Introduction
      3. Loan Pricing and Profit Margins: General Remarks
      4. Credit Rationing
      5. Bank Capital and Credit Rationing
      6. The Spot Lending Decision
      7. Long-Term Bank-Borrower Relationships
      8. Long-Term Relationships and Moral Hazard
      9. Loan Restructuring and Default
      10. Conclusion
      11. Case Study Zeus Steel, Inc.31
    4. Chapter 7: Special Topics in Credit: Syndicated Loans, Loan Sales, and Project Finance
      1. Glossary of Terms
      2. Introduction
      3. Syndicated Lending
      4. Project Finance
      5. Conclusion
    1. Chapter 8: Off-Balance Sheet Banking and Contingent Claims Products
      1. Glossary of Terms
      2. Introduction
      3. Loan Commitments: A Description
      4. Rationale for Loan Commitments
      5. Pricing of Loan Commitments
      6. Loan Commitments and Monetary Policy
      7. Other Contingent Claims: Letters of Credit
      8. Other Contingent Claims: Swaps
      9. Other Contingent Claims: Credit Derivatives
      10. Risks for Banks in Contingent Claims
      11. Regulatory Issues
      12. Conclusion
      13. Case Study Youngstown Bank
    2. Chapter 9: Securitization
      1. Glossary of Terms
      2. Introduction
      3. Preliminary Remarks on the Economic Motivation for Securitization and Loan Sales
      4. Different Types of Securitization Contracts
      5. Going Beyond Preliminary Remarks on Economic Motivation: The “Why,” “What,” and “How Much Is Enough” of Securitization
      6. Strategic Issues for a Financial Institution Involved in Securitization
      7. Comparison of Loan Sales and Loan Securitization
      8. Conclusion
      9. Case Study Lone Star Bank
    1. Chapter 10: The Deposit Contract and Insurance
      1. Glossary of Terms
      2. Introduction
      3. The Deposit Contract
      4. Liability Management
      5. Liability Mix
      6. Deposit Insurance
      7. The Great Deposit Insurance Debacle
      8. Conclusion
    1. Chapter 11: Objectives of Bank Regulation
      1. Glossary of Terms
      2. Introduction
      3. The Essence of Bank Regulation
      4. The Agencies of Bank Regulation
      5. Market Structure and Competition
      6. The Basel I Capital Accord
      7. Safety and Soundness Regulation: Bank Portfolio Restrictions
      8. Consumer Protection, Credit Allocation, and Monetary Control Regulation
      9. Conclusion
    2. Chapter 12: Milestones in Banking Legislation and Regulatory Reform
      1. Glossary of Terms
      2. Introduction
      3. Milestones of Banking Legislation
      4. Problems of Bank Regulation
      5. The 1991 FDICIA and Beyond
      6. Liquidity Constraints, Capital Requirements, and Monetary Policy
      7. The Basel II Capital Accord
      8. The Debate Over Capital Requirements
      9. Conclusion
    1. Chapter 13: Management of Risks and Opportunities in Banking
      1. Glossary of Terms
      2. Introduction
      3. Opportunities and Risks in Banking
      4. Day-to-Day Management
      5. Crisis Management and Enterprise Risk Management
      6. Strategic Planning
      7. Case Study
      8. Conclusion
    1. Chapter 14: Mergers and Acquisitions
      1. Glossary of Terms
      2. Introduction
      3. Recent Trends in Mergers and Acquisitions in Banking
      4. Corporate Control Issues
      5. Mergers in Banking
      6. Hostile Takeovers in Banking
      7. Conclusion
    2. Chapter 15: Investment Banking
      1. Glossary of Terms
      2. Introduction
      3. What Investment Banks Do
      4. Risk Management, Structured Finance, and Investment Banks
      5. Conclusion
      6. Appendix 15.19
    1. Chapter 16: The Future
      1. Glossary of Terms
      2. Introduction
      3. Future Opportunities for Banks: Expanded Role for Relationship Banking and the Implications for Universal Banking, Financial Innovation, and Globalization
      4. Risk Management by Banks
      5. The Basel Initiative and Future Capital Accords
      6. Conclusion
  18. Index