The Principles of Banking, 2nd Edition

The Principles of Banking, 2nd Edition

by Moorad Choudhry, Neal Ardley, Sharon Bowles, Henrique Fragelli, Oldrich Masek, Jason Oakley, Helen Sachdev
Released September 2022
Publisher(s): Wiley
ISBN: 9781119755647

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Book description

A timely and robust discussion of responsible bank stewardship and practice.

The Second Edition of The Principles of Banking offers banking professionals, regulators, and students from a variety of backgrounds an authoritative and practical discussion of the foundations of modern banking and good banking practice. In the book, you'll find a comprehensive roadmap to a more sustainable business model for your banking organization.

The author draws on his many years' experience as a commercial and investment banker as he explains the original principles of banking—including sound lending policy, capital management, and liquidity risk management—as well as new material covering the impact of COVID-19 on banks, risk management, and balance sheet management.

The Principles of Banking also provides recommendations for bank asset-liability management best practices that enable banks to deliver optimized balance sheets for the benefit of all stakeholders. It also includes new chapters in market risk management, foreign exchange risk management, interest rate risk, and credit risk policy and management.

An essential update to a widely read and taught banking text, The Principles of Banking, Second Edition is an indispensable resource for banking professionals and students everywhere.

Table of contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Dedication
  5. Foreword
  6. Foreword
  7. Foreword
  8. Foreword
  9. Foreword
  10. Foreword
    1. NOTES
  11. Preface
    1. PAPERBACK FORMAT
    2. LAYOUT OF THE BOOK
    3. COMPANION WEBSITE
    4. NEWDIGATE FOOTBALL CLUB
  12. Acknowledgements
  13. Preface to the First Edition
    1. NOTE
  14. About the Author
  15. PART I: Banking, Bank Customer Business and Regulation
    1. CHAPTER 1: Banking, Bank Business and Financial Statements
      1. AN INTRODUCTION TO BANKING
      2. BANK BUSINESS MODEL
      3. BANKING BUSINESS AND CAPITAL
      4. BANK PRODUCTS AND NET INTEREST MARGIN MANAGEMENT
      5. FINANCIAL STATEMENTS AND RATIOS
      6. THE MONEY MARKETS
      7. LOAN VALUATION
      8. RISK EXPOSURES IN BANKING
      9. CHAPTER SUMMARY
      10. APPENDIX 1.1 SUMMARY OVERVIEW OF BANK PRODUCT LINE
      11. APPENDIX 1.2 OVERNIGHT REFERENCE RATES (RFR)
      12. REFERENCES AND FURTHER READING
      13. NOTES
    2. CHAPTER 2: Ethics, Conduct and Customer Service
      1. A BANK'S CUSTOMERS
      2. ANTI-MONEY LAUNDERING AND KNOW YOUR CUSTOMER
      3. ETHICS AND CUSTOMER SERVICE
      4. ETHICS AND CONDUCT
      5. ETHICS, CONDUCT AND REPUTATION RISK
      6. CHAPTER SUMMARY
      7. REFERENCES AND FURTHER READING
      8. NOTES
    3. CHAPTER 3: Bank Regulatory Capital and the “Basel Rules”
      1. BANK REGULATORY CAPITAL REQUIREMENTS
      2. MACROPRUDENTIAL REGULATION
      3. BASEL I
      4. BASEL II
      5. BASEL III
      6. THE 2017 BASEL III REFORMS (“BASEL IV”)
      7. FROM 2017 TO THE FUTURE
      8. CRYPTOASSETS
      9. CLIMATE CHANGE RELATED FINANCIAL RISKS
      10. CHAPTER SUMMARY
      11. APPENDIX 3
      12. REFERENCES
      13. NOTES
  16. PART II: Bank Asset and Liability Management
    1. CHAPTER 4: The Yield Curve
      1. THE YIELD CURVE
      2. IMPORTANCE OF THE YIELD CURVE
      3. THE MONEY MARKET AND CAPITAL MARKET YIELD CURVE
      4. TYPES OF YIELD CURVE
      5. ANALYSING AND INTERPRETING THE YIELD CURVE
      6. FURTHER VIEWS ON THE YIELD CURVE
      7. FORMAL POLICY FOR SETTING THE BANK'S INTERNAL FUNDING CURVE
      8. CONSTRUCTING THE BANK INTERNAL FUNDING CURVE
      9. YIELD CURVE BUILDING FROM MARKET RATES
      10. CHAPTER SUMMARY
      11. REFERENCES AND FURTHER READING
      12. NOTES
    2. CHAPTER 5: Asset–Liability Management I
      1. ORIGINS OF BANK ALM
      2. BASIC CONCEPT OF ALM
      3. LIQUIDITY RISK
      4. MANAGING LIQUIDITY: BASELINE PRINCIPLES
      5. INTEREST-RATE RISK AND SOURCE
      6. THE ALM DESK
      7. TEMPLATE ALM POLICY FOR A COMMERCIAL BANK
      8. MIDDLE-OFFICE TREASURY PROCEDURE AND ALM PRACTICE
      9. STRATEGIC ALM
      10. THE CONCEPT OF ALM OPTIMISATION
      11. ALM AND NEGATIVE INTEREST RATES
      12. CHAPTER SUMMARY
      13. APPENDIX 5.1
      14. REFERENCES AND FURTHER READING
      15. NOTES
    3. CHAPTER 6: Balance Sheet Management
      1. MONEY MARKET INSTRUMENTS AND FOREIGN EXCHANGE
      2. MONEY MARKETS RATES
      3. FOREIGN EXCHANGE MARKETS
      4. FX BALANCE SHEET HEDGING
      5. TRADING APPROACH
      6. INTEREST-RATE HEDGING TOOLS
      7. INTEREST-RATE SWAP HEDGING APPLICATIONS
      8. HEDGING INTEREST-RATE RISK USING INTEREST-RATE SWAPS
      9. OVERNIGHT INDEX INTEREST-RATE SWAPS
      10. INTEREST-RATE RISK EXPOSURE AND OPTION HEDGING
      11. HEDGING USING BOND FUTURES CONTRACTS
      12. BALANCE SHEET MANAGEMENT AND SECURITISATION
      13. TREASURY DESK INVESTMENT GUIDELINES TEMPLATE
      14. CHAPTER SUMMARY
      15. REFERENCES
      16. NOTES
    4. CHAPTER 7: Managing Interest-Rate Risk in the Banking Book (IRRBB)
      1. INTEREST-RATE RISK IN THE BANKING BOOK
      2. THE INTEREST-RATE GAP REPORT
      3. NII SENSITIVITY
      4. ECONOMIC VALUE OF EQUITY (EVE) SENSITIVITY
      5. THE MANAGEMENT OF GAP RISK
      6. THE MANAGEMENT OF BASIS AND OPTIONALITY RISKS
      7. THE MANAGEMENT OF PREPAYMENT RISK
      8. THE MANAGEMENT OF PIPELINE RISK
      9. THE MANAGEMENT OF CAP AND FLOOR RISK
      10. THE ALCO REPORT FOR IRRBB
      11. CREDIT SPREAD RISK IN THE BANKING BOOK (CSRBB)
      12. BCBS386: THE BASEL COMMITTEE PRINCIPLES FOR INTEREST-RATE RISK IN THE BANKING BOOK
      13. A FINAL WORD ON IRRBB
      14. CHAPTER SUMMARY
      15. FURTHER READING
      16. NOTES
    5. CHAPTER 8: Bank Treasury Operating Model
      1. LOCATING THE ALM FUNCTION
      2. TREASURY OPERATING MODEL
      3. GROUP TREASURY OPERATING MODEL
      4. CHAPTER SUMMARY
      5. REFERENCES AND FURTHER READING
      6. NOTE
    6. CHAPTER 9: ALCO Governance Framework and Terms of Reference
      1. TRADITIONAL ALCO MODEL AND POLICY
      2. THE MODERN-DAY ALCO
      3. ALCO REPORTING
      4. CHAPTER SUMMARY
      5. REFERENCES AND FURTHER READING
      6. NOTES
    7. CHAPTER 10: ALM Sundries: Asset Encumbrance, Hedge Accounting, IFRS 9 and EIR
      1. ASSET ENCUMBRANCE
      2. HEDGE ACCOUNTING
      3. HIGH LEVEL PRINCIPLES OF IFRS 9 AND EIR
      4. CHAPTER SUMMARY
      5. REFERENCES AND FURTHER READING
      6. NOTES
  17. PART III: Bank Liquidity Risk Management
    1. CHAPTER 11: Principles of Bank Liquidity Management
      1. BANK LIQUIDITY
      2. SUSTAINABLE BANKING: TEN PRINCIPLES OF BANK LIQUIDITY RISK MANAGEMENT
      3. THE BANK LIQUIDITY POLICY STATEMENT
      4. POLICY ON INTRA-GROUP LENDING
      5. THE LIQUID ASSET BUFFER
      6. LIQUIDITY MANAGEMENT AND COLLATERAL
      7. THE CONTINGENCY FUNDING PLAN
      8. CHAPTER SUMMARY
      9. REFERENCES AND FURTHER READING
      10. NOTES
    2. CHAPTER 12: Liquidity Risk Metrics
      1. TWO KEY LIQUIDITY METRICS
      2. BASEL LIQUIDITY METRICS
      3. CHAPTER SUMMARY
      4. FURTHER READING
      5. NOTES
    3. CHAPTER 13: Liquidity Risk Reporting
      1. LIQUIDITY RISK REPORTING
      2. REGULATOR REPORTING
      3. CHAPTER SUMMARY
    4. CHAPTER 14: Bank Funds Transfer Pricing
      1. THE CONCEPT OF FUNDS TRANSFER PRICING
      2. THE DEVELOPMENT OF FUNDS TRANSFER PRICING
      3. PRICING LIQUIDITY
      4. FUNDS TRANSFER PRICING POLICY TEMPLATE
      5. CHAPTER SUMMARY
      6. REFERENCES
      7. NOTES
  18. PART IV: Bank Strategy and Governance
    1. CHAPTER 15: Bank Strategy I
      1. THE STRATEGIC PLANNING PROCESS
      2. STRATEGY AND THE BANK BUSINESS MODEL
      3. EVALUATION OF THE STRATEGIC PLAN
      4. CONCLUSION
      5. CHAPTER SUMMARY
      6. REFERENCES AND FURTHER READING
    2. CHAPTER 16: Bank Strategy II
      1. TEXTBOOK TREATMENT OF BANK CAPITAL
      2. CAPITAL MANAGEMENT POLICY
      3. BENCHMARKING WITH THE MARKET
      4. AN INTEGRATED CAPITAL AND LIQUIDITY MANAGEMENT STRATEGY
      5. CAPITAL MANAGEMENT: CAPITAL INSTRUMENTS
      6. CAPITAL MANAGEMENT STRATEGY
      7. CHAPTER SUMMARY
      8. REFERENCES AND FURTHER READING
      9. NOTES
    3. CHAPTER 17: Principles of Corporate Governance
      1. EFFECTIVE BANK CORPORATE GOVERNANCE: CONCLUSIONS FROM THE 2008 BANK CRASH
      2. MARKET OBSERVATIONS
      3. INTERNATIONAL BANKS
      4. UBS AG
      5. CONCLUSION
      6. POLICY RECOMMENDATIONS
      7. MANAGEMENT STRUCTURE
      8. GOVERNANCE AND SUSTAINABLE BANKING
      9. CHAPTER SUMMARY
      10. REFERENCES
      11. NOTE
  19. PART V: Principles of Risk Management and Regulation
    1. CHAPTER 18: The Risk Management Framework
      1. RISK EXPOSURES IN BANKING
      2. MACRO-LEVEL RISK MANAGEMENT AND STRATEGY
      3. RISK MANAGEMENT FRAMEWORK TEMPLATE
      4. EXAMPLE OF BOARD-LEVEL RAS
      5. A FINAL WORD
      6. CHAPTER SUMMARY
      7. REFERENCES
      8. NOTES
    2. CHAPTER 19: Credit Risk Assessment and Reporting Principles
      1. DRIVERS OF CREDIT RISK
      2. PORTFOLIO RISK REPORTING
      3. RISK POLICY
      4. PRODUCT LINE RISK REPORTING
      5. BUSINESS LINE REPORTING
      6. CHAPTER SUMMARY
      7. REFERENCES
      8. NOTES
    3. CHAPTER 20: Stress Testing, ICAAP, ILAAP and Reverse Stress Testing
      1. STRESS TESTING POLICY
      2. SAMPLE STRESS TEST RESULTS
      3. SCENARIO ANALYSIS: ECONOMIC DOWNTURN STRESS TEST REPORT
      4. LIQUIDITY STRESS TEST REPORTS
      5. INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS (ICAAP)
      6. INTERNAL LIQUIDITY ADEQUACY ASSESSMENT (ILAAP)
      7. REVERSE STRESS TESTING: DEFINITION, APPROACH AND RELEVANCE
      8. CHAPTER SUMMARY
      9. REFERENCES
      10. NOTES
    4. CHAPTER 21: Recovery Planning and Resolution Planning
      1. RECOVERY PLANNING AND RESOLUTION PLANNING
      2. CONCLUSION
      3. CHAPTER SUMMARY
      4. REFERENCE
      5. NOTE
    5. CHAPTER 22: Sustainable Banking and Climate Change Risk Management
      1. SUSTAINABLE BANKING AND GREEN BANKING
      2. CLIMATE CHANGE RISK MANAGEMENT
      3. CHAPTER SUMMARY
      4. REFERENCES
      5. NOTE
    6. CHAPTER 23: Case Studies: Analysis, Problem Solving and Decision Making
      1. COHERENT ADVICE AND PROBLEM SOLVING: CASE STUDIES
      2. APPENDIX 23.1
    7. CHAPTER 24: Everything Changes, and Nothing Changes: Excerpts from a Timeless Work
      1. Abstract
      2. CORE PRINCIPLES OF BANKING
      3. THE BALANCE SHEET IS EVERYTHING
      4. REPUTATION AS A SAFE STORE OF VALUE
      5. INTEREST RATE
      6. THE HIGH QUALITY LIQUID ASSETS BUFFER (HQLA)
      7. THE ORIGINAL CAPITAL CONSERVATION BUFFER
      8. CORPORATE GOVERNANCE STANDARDS
      9. THE BASEL OXBOROUGH GUIDELINES
      10. CHAPTER SUMMARY
      11. REFERENCE
      12. NOTES
  20. PART VI: Guide to the Companion Website
    1. CHAPTER 25: Applications Software, Policy Templates and Spreadsheet Models
      1. CHAPTER FILES
      2. NOTES
  21. Afterword
  22. List of Terms andtheir Abbreviations
  23. Index
  24. End User License Agreement

Product information

  • Title: The Principles of Banking, 2nd Edition
  • Author(s): Moorad Choudhry, Neal Ardley, Sharon Bowles, Henrique Fragelli, Oldrich Masek, Jason Oakley, Helen Sachdev
  • Release date: September 2022
  • Publisher(s): Wiley
  • ISBN: 9781119755647