Front Cover -- Contemporary Financial Intermediation -- Copyright Page -- Dedication Page -- Abbreviated Contents -- Extended Contents -- Preface -- Pedagogy -- Organization -- Supplementary Materials -- Acknowledgments -- About the Authors -- Stuart I. Greenbaum -- Anjan V. Thakor -- Part I: The Background -- A Friendly Conversation -- Introduction -- The Conversation: 1991 -- Follow-Up to the Conversation: 2007 -- Chapter 1: Basic Concepts -- Introduction -- Risk Preferences -- Diversification -- Riskless Arbitrage -- Options -- Market Efficiency -- Market Completeness -- Asymmetric Information and Signaling -- Agency and Moral Hazard -- Time Consistency -- Nash Equilibrium -- Revision of Beliefs and Bayes Rule -- References -- Part II: What Is Financial Intermediation? -- Chapter 2: The Nature and Variety of Financial Intermediation -- Glossary of Terms -- Introduction -- What Are Financial Intermediaries? -- The Variety of Financial Intermediaries -- Depository Financial Intermediaries -- Nondepository Intermediaries -- The Role of the Government -- Financial Intermediaries on the Periphery -- Conclusion -- Review Questions -- Appendix 2.1 Measurement Distortions and the Balance Sheet -- Appendix 2.2 Guide to Federal Reserve Regulations -- References -- Chapter 3: The What, How, and Why of Financial Intermediaries -- Glossary of Terms -- Introduction -- Fractional Reserve Banking and the Goldsmith Anecdote -- A Model of Banks and Regulation -- The Macroeconomic Implications of Fractional Reserve Banking: The Fixed Coefficient Model -- Large Financial Intermediaries -- How Banks Can Help to Make Nonbank Financial Contracting More Efficient -- The Empirical Evidence: Banks Are Special -- Ownership Structure of Depository Financial Institutions -- The Borrower's Choice of Finance Source -- Conclusion -- Review Questions.

Appendix 3.1 The Formal Analysis of Large Intermediaries -- References -- Part III: Major "On-Balance-Sheet" Risks in Banking -- Chapter 4: Major Risks Faced by Banks -- Glossary of Terms -- Introduction -- The Source of Business Risk -- Credit, Interest Rate, and Liquidity Risks -- The Term Structure of Interest Rates -- Duration -- Convexity -- Interest Rate Risk -- Liquidity Risk -- Conclusion -- Case Study Eggleston State Bank -- Review Questions -- Appendix 4.1 Dissipation of Withdrawal Risk Through Diversification -- Appendix 4.2 Lender-of-Last-Resort Moral Hazard -- References -- Chapter 5: Spot Lending -- Glossary of Terms -- Introduction -- Description of Bank Assets -- What Is Lending? -- Loans Versus Securities -- Structure of Loan Agreements -- Informational Problems in Loan Contracts and the Importance of Loan Performance -- Credit Analysis: The Factors -- Sources of Credit Information -- Analysis of Financial Statements -- Loan Covenants -- Conclusion -- Case Study Indiana Building Supplies, Inc. -- Review Questions -- Appendix 5.1 Trends in Credit Analysis -- References -- Chapter 6: Further Issues in Bank Lending -- Glossary of Terms -- Introduction -- Loan Pricing and Profit Margins: General Remarks -- Credit Rationing -- The Spot Lending Decision -- Long-Term Relationships and Moral Hazard -- Loan Restructuring and Default -- Conclusion -- Case Study Zeus Steel, Inc. -- Review Questions -- References -- Chapter 7: Special Topics in Credit: Syndicated Loans, Loan Sales, and Project Finance -- Glossary of Terms -- Introduction -- Syndicated Lending -- Project Finance -- Conclusion -- Review Questions -- References -- Part IV: Off the Bank's Balance Sheet -- Chapter 8: Off-Balance Sheet Banking and Contingent Claims Products -- Glossary of Terms -- Introduction -- Loan Commitments: A Description -- Rationale for Loan Commitments.

Pricing of Loan Commitments -- The Differences Between Loan Commitments and Put Options -- Loan Commitments and Monetary Policy -- Other Contingent Claims: Letters of Credit -- Other Contingent Claims: Swaps -- Other Contingent Claims: Credit Derivatives -- Risks for Banks in Contingent Claims -- Regulatory Issues -- Conclusion -- Case Study Youngstown Bank -- Review Questions -- References -- Chapter 9: Securitization -- Glossary of Terms -- Introduction -- Preliminary Remarks on the Economic Motivation for Securitization and Loan Sales -- Different Types of Securitization Contracts -- Going Beyond Preliminary Remarks on Economic Motivation: The "Why," "What," and "How Much Is Enough" of Securitization -- Strategic Issues for a Financial Institution Involvedin Securitization -- Comparison of Loan Sales and Loan Securitization -- Conclusion -- Case Study Lone Star Bank -- Review Questions -- References -- Part V: The Deposit Contract -- Chapter 10: The Deposit Contract and Insurance -- Glossary of Terms -- Introduction -- The Deposit Contract -- Liability Management -- Deposit Insurance -- The Great Deposit Insurance Debacle -- Conclusion -- Review Questions -- References -- Partn VI: Bank Regulation -- Chapter 11: Objectives of Bank Regulation -- Glossary of Terms -- Introduction -- The Essence of Bank Regulation -- The Agencies of Bank Regulation -- Market Structure and Competition -- The Basel I Capital Accord -- Safety and Soundness Regulation: Bank Portfolio Restrictions -- Consumer Protection, Credit Allocation, and Monetary Control Regulation -- Conclusion -- Review Questions -- References -- Chapter 12: Milestones in Banking Legislation and Regulatory Reform -- Glossary of Terms -- Introduction -- Milestones of Banking Legislation -- Problems of Bank Regulation -- The 1991 FDICIA and Beyond.

Liquidity Constraints, Capital Requirements, and Monetary Policy -- The Basel II Capital Accord -- The Debate Over Capital Requirements -- Conclusion -- Review Questions -- References -- Part VII: Overall Management of the Bank -- Chapter 13: Management of Risks and Opportunities in Banking -- Glossary of Terms -- Introduction -- Opportunities and Risks in Banking -- Day-to-Day Management -- Crisis Management and Enterprise Risk Management -- Strategic Planning -- Case Study -- Conclusion -- Review Questions -- References -- Part VIII: Corporate Control and Governance -- Chapter 14: Mergers and Acquisitions -- Glossary of Terms -- Introduction -- Recent Trends in Mergers and Acquisitions in Banking -- Corporate Control Issues -- Mergers in Banking -- Hostile Takeovers in Banking -- Conclusion -- Review Questions -- References -- Chapter 15: Investment Banking -- Glossary of Terms -- Introduction -- What Investment Banks Do -- Risk Management, Structured Finance, and Investment Banks -- Conclusion -- Appendix 15.1 -- References -- Part IX: The Future -- Chapter 16: The Future -- Glossary of Terms -- Introduction -- Future Opportunities for Banks: Expanded Role for Relationship Banking and the Implications for Universal Banking, Financial Innovation, and Globalization -- The Basel Initiative and Future Capital Accords -- Conclusion -- Review Questions -- References -- Index.