Tài liệu Thị trường tài chính và các định chế tài chính_ Chapter 19 pptx

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Chapter 19
Bank Management
Financial Markets and Institutions, 7e, Jeff Madura
Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved.
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Chapter Outline

Bank management

Managing liquidity

Managing interest rate risk

Managing credit risk

Managing market risk

Operating risk

Managing risk of international operations

Bank capital management

Management based on forecasts

Bank restructuring to manage risks

Integrated bank management
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Bank Management

The goal behind managerial policies of a bank is
to maximize the wealth of the bank’s
shareholders

Managers may be tempted to make decisions
that are in their own best interests

Banks can incur agency costs

Banks could provide stock as compensation to managers to
maximize the bank’s stock price

Banks with a low stock price may become takeover targets
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Bank Management (cont’d)

Board of directors

The board of directors oversees operations of the
banks and attempts to ensure that managerial
decisions are in the best interests of shareholders

Bank boards tend to contain a higher percentage of
outside members than boards of other types of firms

Functions of bank directors are to:

Determine a compensation system for bank executives


Ensure proper disclosure of the financial condition and
performance

Oversee growth strategies such as acquisitions

Oversee policies for changing capital structure

Assess performance and ensure that corrective action is
taken if there is weak performance
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Managing Liquidity

Banks can experience illiquidity when cash outflows
exceed cash inflows

Illiquidity can be resolved by creating additional liabilities or
selling assets

Banks should maintain the level of liquid assets that will
satisfy their liquidity needs but use their remaining funds
to satisfy their other objectives

Research has shown that high-performance banks are able to
maintain relatively low liquidity

Use of securitization to boost liquidity

Securitization commonly involves the sale of assets by the bank
to a trustee who issues securities that are collateralized by the

assets

Securitization converts future cash flows into immediate cash
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Managing Interest Rate Risk

Bank performance is influenced by the interest payments
earned relative to the interest paid:

During a period of rising interest rates, a bank’s net interest
margin will likely decrease if its liabilities are more rate sensitive
than its assets (see next slide)

During a period of decreasing interest rates, a bank’s net
interest margin will likely increase if its liabilities are more rate
sensitive than its assets (see next slide)
Assets
expenses Interest - revenues Interest
margin interest Net =
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Managing Interest Rate Risk
(cont’d)
%
%
Time
Time
Rate on Loans
Cost of FundsSpread
Increasing Interest Rates Decreasing Interest Rates
Cost of Funds

Rate on Loans
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Managing Interest Rate Risk
(cont’d)

To measure interest rate risk, a bank measures
the risk and then uses its assessment of future
interest rates to decide whether and how to
hedge the risk

Methods used to assess interest rate risk:

Gap analysis

Duration analysis

Regression analysis
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Managing Interest Rate Risk
(cont’d)

Methods used to assess interest rate risk
(cont’d)

Gap analysis

Gap is defined as:

The gap ratio is the volume of rate-sensitive assets divided
by rate-sensitive liabilities

sliabilitie sensitive Rate - assets sensitive RateGap
=
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Computing A Bank’s Gap and
Gap Ratio
Philly Bank generated interest revenues of $100 million last year and
$45 million in interest expenses. Philly bank has $2 billion in
assets, of which $800 million are rate-sensitive. Philly also has
$700 million in rate-sensitive liabilities. What are Philly Bank’s gap
and gap ratio?
%29.114
000,000,700$
00$800,000,0
ratio Gap
000,000,100$
000,000,700$000,000,800$
sliabilitie sensitive Rate - assets sensitive RateGap
==
=
−=
=
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Managing Interest Rate Risk
(cont’d)

Methods used to assess interest rate risk
(cont’d)

Gap analysis (cont’d)


Banks often classify assets and liabilities into categories
based on the time of repricing and calculate a gap for each
category

Banks must decide how to classify their liabilities and assets
as rate sensitive versus rate insensitive

Each bank may have its own classification system, because
there is no perfect measurement of gap
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Managing Interest Rate Risk
(cont’d)

Methods used to assess interest rate risk
(cont’d)

Duration measurement

Duration can capture the different degrees of interest rate
sensitivity:

The duration of a bank’s asset portfolio is the weighted
average of the durations of the individual assets
∑
∑
=
=
+
+
=

n
t
t
t
n
t
t
t
k
C
k
tC
1
1
)1(
)1(
)(
DUR
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Managing Interest Rate Risk
(cont’d)

Methods used to assess interest rate risk (cont’d)

Duration measurement (cont’d)

The bank can also estimate the duration of its liability portfolio and
then estimate the duration gap:

A duration gap of zero means the bank is not exposed to interest

rate risk

Banks with positive duration gaps are adversely affected by rising
interest rates and positively affected by declining interest rates
( )
[ ]
LIAB/ASDURLIAB-DURASDURGAP ×=
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Managing Interest Rate Risk
(cont’d)

Methods used to assess interest rate risk
(cont’d)

Duration measurement (cont’d)

Assets with shorter maturities have shorter durations

Assets that generate more frequent coupon payments have
shorter durations

The capabilities of duration are limited when applied to
assets that can be terminated on a moment’s notice
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Managing Interest Rate Risk
(cont’d)

Methods used to assess interest rate risk
(cont’d)


Regression analysis

A bank can assess interest rate risk by determining how
performance has historically been influenced by interest
rate movements

A proxy must be chosen for bank performance and for
prevailing interest rates and regression analysis can be
applied:
uiBRBBR
m
+++=
210
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Managing Interest Rate Risk
(cont’d)

Methods used to assess interest rate risk (cont’d)

Regression analysis (cont’d)

A positive (negative) coefficient suggests that performance is
favorably (adversely) affected by rising interest rates

If the interest rate coefficient is zero, the bank’s stock returns are
insulated from interest rate movements

The vast majority of research has found that bank stock levels are
inversely related to interest rate movements


Regression analysis can be combined with the value-at-risk
(VAR) method to determine how its market value would change in
response to specific interest rate movements
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Managing Interest Rate Risk
(cont’d)

Determining whether to hedge interest rate risk

Banks should consider using their measurement of
interest rate risk along with their forecast of interest
rate movements to determine whether they should
hedge

Since none of the measures is perfect for all
situations, some banks measure interest rate risk
using all three methods

In general, the three methods should lead to a similar
conclusion (see next slide)
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Gap Analysis
If the bank’s gap is:
Negative
Positive
Increase
Increase
Decrease
Decrease
…and interest rates

are expected to:
…the bank should:
Consider hedging
Remain unhedged
Remain unhedged
Consider hedging
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Duration Gap Analysis
If the bank’s
duration gap is:
Negative
Positive
Increase
Increase
Decrease
Decrease
…and interest rates
are expected to:
…the bank should:
Remain unhedged
Consider hedging
Consider hedging
Remain unhedged