Foundations of Banking Risk -- Contents -- Introduction -- Acknowledgments -- CHAPTER 1 Functions and Forms of Banking -- 1.1 Banks and Banking -- 1.1.1 Core Bank Services -- 1.1.2 Banks in the Economy -- 1.1.3 Money Creation -- 1.1.4 Payment Services -- 1.1.5 Other Banking Services -- 1.2 Different Bank Types -- 1.2.1 Retail Banks -- 1.2.2 Wholesale Banks -- 1.2.3 Central Banks -- 1.3 Banking Risks -- 1.3.1 Credit Risk -- 1.3.2 Market Risk -- 1.3.3 Operational Risk -- 1.3.4 Other Risk Types -- 1.4 Forces Shaping the Banking Industry -- CHAPTER 2 Managing Banks -- 2.1 Bank Corporate Governance -- 2.1.1 Board of Directors -- 2.1.2 Senior Management -- 2.1.3 Internal and External Auditors -- 2.1.4 Transparency -- 2.2 Balance Sheet and Income Statement -- 2.2.1 Bank Assets -- 2.2.2 Bank Liabilities -- 2.2.3 Equity -- 2.2.4 Income Statement -- 2.2.5 The Role of Bank's Equity -- 2.3 Asset and Liability Management -- 2.3.1 Interest Rate Risk -- 2.3.2 Liquidity Risk -- 2.4 Loan Losses -- 2.4.1 Valuing Assets in the Trading Book -- 2.4.2 Value of Assets in the Banking Book, Performing Loans -- 2.4.3 Value of Assets in the Banking Book, Nonperforming Loans -- 2.4.4 Provision For Loan Losses and Loan Loss Reserves -- 2.4.5 Loan Loss Reserves and Loan Losses -- CHAPTER 3 Banking Regulation -- 3.1 From Liquidity Crisis to Bank Panics -- 3.1.1 Liquidity Crisis and Bank Runs -- 3.1.2 Bank Panics -- 3.2 Foundations of Bank Regulation -- 3.2.1 Regulatory Objectives -- 3.2.2 The Regulatory Process -- 3.2.3 Stabilization: The Lender of Last Resort -- 3.3 International Regulation of Bank Risks -- 3.3.1 Bank for International Settlements -- 3.3.2 The Basel Committee -- 3.3.3 The Basel I Accord -- 3.3.4 The Market Risk Amendment -- 3.3.5 Weaknesses of Bank Capital Requirements in Basel I Accord -- 3.3.6 The Basel II Accord -- 3.3.7 Adopting Basel II.

3.4 Deposit Insurance -- 3.4.1 Deposit Insurance Coverage -- 3.4.2 Deposit Insurance Around the World -- 3.5 The Road Ahead -- CHAPTER 4 Credit Risk -- 4.1 Introduction to Credit Risk -- 4.2 Lenders -- 4.2.1 Investment Banks -- 4.2.2 Credit Rating Agencies -- 4.3 Borrowers -- 4.3.1 Retail Borrowers -- 4.3.2 Corporate Borrowers -- 4.3.3 Sovereign Borrowers -- 4.3.4 Public Borrowers -- 4.4 Characteristics of Credit Products -- 4.4.1 Maturity -- 4.4.2 Commitment Specification -- 4.4.3 Loan Purpose -- 4.4.4 Repayment Source -- 4.4.5 Collateral Requirements -- 4.4.6 Covenant Requirements -- 4.4.7 Loan Repayment -- 4.5 Types of Credit Products -- 4.5.1 Agricultural Loans -- 4.5.2 Asset-Based or Secured Lending -- 4.5.3 Automobile Loans -- 4.5.4 Commercial Paper -- 4.5.5 Factoring -- 4.5.6 Home Equity Credit Lines and Home Equity Loans -- 4.5.7 Leasing -- 4.5.8 Mortgages -- 4.5.9 Overdraft Facilities -- 4.5.10 Project, or Infrastructure, Finance -- 4.5.11 Revolving Lines of Credit -- 4.5.12 Syndicated Loans -- CHAPTER 5 The Credit Process and Credit Risk Management -- 5.1 The Credit Process -- 5.1.1 Identifying the Credit Opportunity -- 5.1.2 Credit Evaluation -- 5.1.3 Credit Decision Making -- 5.1.4 Credit Disbursement -- 5.1.5 Credit Monitoring -- 5.2 The Credit Analysis Process -- 5.2.1 The Five Cs of Credit -- 5.2.2 The Credit Analysis Path -- 5.2.3 Business, or Macro, Risks -- 5.2.4 Financial, or Micro, Risks -- 5.2.5 Structural Risk -- 5.2.6 Information Sources -- 5.3 Portfolio Management -- 5.3.1 Concentration Risk -- 5.3.2 Securitizations -- 5.4 Credit Risk and Basel II Accord -- 5.4.1 The Standardized Approach -- 5.4.2 Internal Ratings-Based Approaches -- 5.4.3 Common Features to IRB Approaches -- 5.4.4 Minimum Requirements for IRB Approaches -- CHAPTER 6 Market Risk -- 6.1 Introduction to Market Risk -- 6.2 Basics of Financial Instruments.

6.2.1 Currencies -- 6.2.2 Fixed Income Instruments -- 6.2.3 Interbank Loans -- 6.2.4 Equities -- 6.2.5 Commodities -- 6.2.6 Derivatives -- 6.3 Trading -- 6.3.1 Fundamental Trading Positions -- 6.3.2 Bid-Ask Spreads -- 6.3.3 Exchange and Over-the-Counter Markets -- 6.4 Market Risk Measurement and Management -- 6.4.1 Types of Market Risk -- 6.4.2 Value-at-Risk -- 6.4.3 Stress Testing and Scenario Analysis -- 6.4.4 Market Risk Reporting -- 6.4.5 Hedging -- 6.5 Market Risk Regulation-The 1996 Market Risk Amendment -- CHAPTER 7 Operational Risk -- 7.1 What Is Operational Risk? -- 7.2 Operational Risk Events -- 7.2.1 Internal Process Risk -- 7.2.2 People Risk -- 7.2.3 Systems Risk -- 7.2.4 External Risk -- 7.2.5 Legal Risk -- 7.3 Operational Loss Events -- 7.3.1 High-Frequency/Low-Impact Risks (HFLI) -- 7.3.2 Low-Frequency/High-Impact Risks (LFHI) -- 7.4 Operational Risk Management -- 7.4.1 Functional Structure of Operational Risk Management Activities -- 7.4.2 Operational Risk Identification, Assessment, and Measurement -- 7.4.3 Example of Operational Risk Measurement and Management -- 7.5 Basel II and Operational Risk -- 7.5.1 Basic Indicator Approach -- 7.5.2 Standardized Approach -- 7.5.3 Advanced Measurement Approach -- 7.5.4 Criteria for Using Different Approaches -- 7.5.5 Basel II and Operational Risk Management -- CHAPTER 8 Regulatory Capital and Supervision under Basel II -- 8.1 Bank Regulatory Capital -- 8.1.1 Bank Regulatory Capital -- 8.1.2 Tier 1 Capital -- 8.1.3 Tier 2 Capital -- 8.1.4 Tier 3 Capital -- 8.1.5 Deductions and Adjustments from Regulatory Capital -- 8.1.6 New Capital -- 8.2 Basel II Minimum Capital Requirement -- 8.3 Pillar 2-Supervisory Review -- 8.3.1 Four Key Principles of Supervisory Review -- 8.3.2 Specific Issues to Address During Supervisory Review -- 8.3.3 Accountability and International Cooperation.

8.4 Pillar 3-Market Discipline -- 8.4.1 Accounting Disclosures -- 8.4.2 General Disclosure Requirements -- 8.4.3 Disclosing Risk Exposure and Risk Assessment -- 8.5 Beyond Regulatory Capital -- 8.5.1 Calculating Economic Capital -- 8.5.2 Risk-Adjusted Performance Measures -- 8.6 Banks, Bank Risks, and Regulation -- Glossary -- Index -- AUTHORS -- EULA.