Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions

Preface

Creating value is challenging in any highly competitive industry, a daily battle to capture market share, defend margins and improve expenses. Managing value in financial services is even more challenging due to the unique role that risk and capital play in the economics of the business: whereas most industrial corporations actively avoid risk, there can be no return to shareholders – and no satisfied customers – if banks and insurers avoid risk, and taking risks requires capital. In banking and insurance, risk and capital management and value management are synonymous.

The role of the Chief Financial Officer (CFO) and Chief Risk Officer (CRO) has evolved and adapted to this economic reality. Modern finance and risk functions now have substantial influence on the strategy, operations and, ultimately, the value of their firms. This influence comes in part from being a business partner and in part through the financial and risk management activities directly within their responsibility.

This Handbook is intended as a practical but theoretically grounded reference for finance and risk professionals interested in managing value. The Handbook consists of three main sections.

Better information – Measuring value. What gets measured, gets managed. Accurately measuring value is a necessary precondition for managing it. This section develops a risk-adjusted valuation and performance measurement framework tailored to banks and insurers, reconciled with the way that our shares ...