O'Reilly logo

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

An Introduction to Banking, 2nd Edition

Book Description

A practical primer to the modern banking operation

Introduction to Banking, Second Edition is a comprehensive and jargon-free guide to the banking operation. Written at the foundational level, this book provides a broad overview of banking to give you an all-around understanding that allows you to put your specialty work into context within the larger picture of your organization. With a specific focus on risk components, this second edition covers all key elements with new chapters on reputational risk, credit risk, stress testing and customer service, including an updated chapter on sustainability. Practical material includes important topics such as the yield curve, trading and hedging, asset liability management, loan origination, product marketing, reputational risk and regulatory capital.

This book gives you the context you need to understand how modern banks are run, and the key points operation at all levels.

  • Learn the critical elements of a well-structured banking operation
  • Examine the risk components inherent in banking
  • Understand operational topics including sustainability and stress testing
  • Explore service-end areas including product marketing and customer service

Banks continue to be the heart of the modern economy, despite the global financial crisis —they have however become more complex. Multiple layers and a myriad of functions contribute to the running of today's banks, and it's critical for new and aspiring bankers to understand the full breadth of the operation and where their work fits in. Introduction to Banking, Second Edition provides an accessible yet complete primer, with emphasis on the areas that have become central to sustainable banking operation.

Table of Contents

  1. COVER
  2. TITLE PAGE
  3. FOREWORD
  4. PREFACE
    1. LAYOUT OF THE BOOK
  5. PREFACE TO THE FIRST EDITION
  6. ACKNOWLEDGEMENTS
  7. ABOUT THE AUTHOR
  8. PART I: Bank Business and the Markets
    1. Chapter 1: BANK BUSINESS AND CAPITAL
      1. THE BASIC BANK BUSINESS MODEL
      2. BANKING BUSINESS
      3. SCOPE OF BANKING ACTIVITIES
      4. BANKING PRODUCTS
      5. CAPITAL MARKETS
      6. FINANCIAL STATEMENTS AND RATIOS
      7. BIBLIOGRAPHY
      8. NOTES
    2. Chapter 2: CUSTOMER SERVICES AND MARKETING FOR BANK PRODUCTS
      1. MARKETING FINANCIAL SERVICES
      2. CUSTOMER SERVICE
      3. PRODUCT DEVELOPMENT
      4. PRODUCT PRICING
      5. CONCLUSION
      6. NOTES
    3. Chapter 3: CREDIT ASSESSMENT AND MANAGING CREDIT RISK
      1. PART 1
      2. CREDIT PROCESS
      3. LOAN ORIGINATION PROCESS STANDARDS
      4. QUALITATIVE FACTORS: RETAIL AND NON‐RETAIL EXPOSURES
      5. INTERNAL RATINGS
      6. COUNTERPARTY RISK PARAMETERS
      7. DEFAULTS EVENTS AND MEASURES
      8. PRODUCT CREDIT RISK MEASUREMENT
      9. CREDIT RISK TERMINOLOGY
      10. MODEL DEVELOPMENT
      11. RISK MONITORING AND MODEL VALIDATION
      12. TRADING BOOK CREDIT EXPOSURES
      13. PART 2
      14. CONCLUSIONS
      15. NOTE
    4. Chapter 4: THE MONEY MARKETS
      1. INTRODUCTION
      2. SECURITIES QUOTED ON A YIELD BASIS
      3. SECURITIES QUOTED ON A DISCOUNT BASIS
      4. COMMERCIAL PAPER
      5. REPO
      6. THE CLASSIC REPO
      7. REPO COLLATERAL
      8. LEGAL TREATMENT
      9. MARGIN
      10. FOREIGN EXCHANGE
      11. FX BALANCE SHEET HEDGING
      12. CURRENCIES USING MONEY MARKET YEAR BASE OF 365 DAYS
      13. NOTES
    5. Chapter 5: THE YIELD CURVE
      1. IMPORTANCE OF THE YIELD CURVE
      2. USING THE YIELD CURVE
      3. YIELD‐TO‐MATURITY YIELD CURVE
      4. ANALYSING AND INTERPRETING THE YIELD CURVE
      5. THEORIES OF THE YIELD CURVE
      6. THE ZERO‐COUPON YIELD CURVE
      7. CONSTRUCTING THE BANK'S INTERNAL YIELD CURVE
      8. CALCULATION ILLUSTRATIONS
      9. UNDERSTANDING FORWARD RATES
      10. SONIA YIELD CURVE
      11. CONCLUSIONS
      12. APPENDIX
      13. REFERENCES
      14. APPENDIX
      15. BIBLIOGRAPHY
      16. NOTES
    6. Chapter 6: INTRODUCTION TO MONEY MARKET DEALING AND HEDGING
      1. MONEY MARKET APPROACH
      2. ALM IN A NEGATIVE YIELD CURVE ENVIRONMENT
      3. CREDIT INTERMEDIATION BY THE REPO DESK
      4. INTEREST‐RATE HEDGING TOOLS
      5. BIBLIOGRAPHY
      6. NOTES
  9. PART II: Asset–Liability Management and Liquidity Risk
    1. Chapter 7: BANK ASSET AND LIABILITY MANAGEMENT I
      1. BASIC CONCEPTS
      2. LIQUIDITY GAP
      3. MANAGING LIQUIDITY
      4. LIQUIDITY MANAGEMENT
      5. THE ALM DESK
      6. CRITIQUE OF THE TRADITIONAL APPROACH TO ALM
      7. STRATEGIC ALM
      8. CONCLUSIONS
      9. BIBLIOGRAPHY
      10. NOTES
    2. Chapter 8: ASSET AND LIABILITY MANAGEMENT II: THE ALCO
      1. TRADITIONAL ALCO MISSION
      2. ALCO GOVERNANCE BEST‐PRACTICE PRINCIPLES
      3. CONCLUSIONS
      4. APPENDIX 8.1: ALCO RECOMMENDED TERMS OF REFERENCE
      5. NOTES
    3. Chapter 9: BANK LIQUIDITY RISK MANAGEMENT I
      1. BEST‐PRACTICE LIQUIDITY RISK MANAGEMENT FRAMEWORK
      2. THE LIQUIDITY POLICY STATEMENT
      3. CONCLUSION
      4. NOTE
    4. Chapter 10: LIQUIDITY RISK MANAGEMENT II: BASEL III LIQUIDITY, LIABILITIES STRATEGY, STRESS TESTING, COLLATERAL MANAGEMENT AND THE HQLA
      1. BASEL III LIQUIDITY METRICS
      2. OPTIMUM LIABILITIES STRATEGY AND MANAGING THE HIGH‐QUALITY LIQUID ASSETS (HQLA) PORTFOLIO
      3. THE LIQUID ASSET BUFFER
      4. LIQUIDITY REPORTING, STRESS TESTING, ILAAP, AND ASSET ENCUMBRANCE POLICY
      5. LIQUIDITY STRESS TESTING
      6. INDIVIDUAL LIQUIDITY ADEQUACY ASSESSMENT PROCESS
      7. INTRA‐DAY LIQUIDITY RISK
      8. ASSET ENCUMBRANCE
      9. COLLATERAL FUNDING MANAGEMENT, FVA, AND CENTRAL CLEARING FOR OTC DERIVATIVES
      10. CONCLUSIONS
      11. NOTES
    5. Chapter 11: BUSINESS BEST‐PRACTICE BANK INTERNAL FUNDS TRANSFER PRICING POLICY
      1. BACKGROUND
      2. SETTING THE BANK POLICY STANDARD
      3. THE TERM LIQUIDITY PREMIUM
      4. TEMPLATE FTP REGIMES
      5. CONCLUSIONS
    6. Chapter 12: NET INTEREST INCOME (NII), NET INTEREST MARGIN (NIM) AND THE MANAGEMENT OF INTEREST‐RATE RISK IN THE BANKING BOOK
      1. NET INTEREST INCOME
      2. NET INTEREST MARGIN
      3. INTEREST‐RATE RISK IN THE BANKING BOOK
      4. SIMULATION ANALYSIS
      5. THE MANAGEMENT OF GAP RISK
      6. THE MANAGEMENT OF BASIS AND OPTION RISKS
      7. THE MANAGEMENT OF PREPAYMENT RISK
      8. THE MANAGEMENT OF PIPELINE RISK
      9. THE MANAGEMENT OF CAP AND FLOOR RISK
      10. BASEL COMMITTEE: HIGH‐LEVEL PRINCIPLES FOR INTEREST‐RATE RISK IN THE BANKING BOOK
      11. CONCLUSIONS
      12. NOTE
    7. Chapter 13: SECURITISATION MECHANICS FOR BALANCE SHEET MANAGEMENT
      1. THE PARTIES TO A SECURITISATION
      2. STRUCTURAL FEATURES OF ABS
      3. PRACTICAL ISSUES WITH ORIGINATING AN OWN‐ASSET SECURITISATION TRANSACTION
      4. SUMMARY AND CONCLUSIONS
      5. BIBLIOGRAPHY
      6. NOTE
  10. PART III: Strategy, Regulatory Capital and Case Studies
    1. Chapter 14: STRATEGY SETTING
      1. THE STRATEGIC PLANNING PROCESS
      2. CONSIDERATIONS IN THE DEVELOPMENT OF STRATEGY
      3. STRATEGY AND THE BANK BUSINESS MODEL
      4. EVALUATION OF THE STRATEGIC PLAN
      5. CONCLUSION
      6. BIBLIOGRAPHY
    2. Chapter 15: BANK REGULATORY CAPITAL, BASEL RULES AND ICAAP
      1. THE BANKING MODEL AND CAPITAL
      2. KEY CAPITAL CONSIDERATIONS
      3. CAPITAL MANAGEMENT POLICY
      4. CAPITAL ADEQUACY AND STRESS TESTING
      5. ICAAP PROCESS – WORKED EXAMPLE OF PRESENTATION
      6. STRESS TESTING
      7. DIVIDEND POLICY
      8. CASE STUDY: INTERNAL CAPITAL ASSESSMENT
      9. CONCLUSIONS
      10. BIBLIOGRAPHY
      11. NOTES
    3. Chapter 16: MANAGING OPERATIONAL RISK
      1. OPERATIONAL RISK OVERVIEW
      2. CONDUCT RISK
      3. OPERATIONAL RISK MEASUREMENT
      4. OPERATIONAL RISK MEASUREMENT CONCEPTS
      5. BASEL OPERATIONAL RISK FRAMEWORK
      6. STANDARDISED APPROACH
      7. QUALITATIVE INPUT AND MODEL VALIDATION
      8. OPERATIONAL RISK MANAGEMENT FRAMEWORK
      9. CONCLUSIONS
    4. Chapter 17: ADVICE AND PROBLEM SOLVING: CASE STUDIES
      1. HOW TO STUDY THIS CHAPTER
  11. Appendix A: FINANCIAL MARKETS ARITHMETIC
    1. INTEREST: PRESENT AND FUTURE VALUE
    2. MULTIPLE CASH FLOWS
    3. CORPORATE FINANCE PROJECT APPRAISAL
    4. INTERPOLATION AND EXTRAPOLATION
    5. NOTE
  12. Appendix B: ABBREVIATIONS AND ACRONYMS
  13. INDEX
  14. END USER LICENSE AGREEMENT