PPTslidesforchapter23-UniversityofHawaii.pptVIP

Chapter Summary Managing Credit Risk: basic techniques for managing relationships and rationing credit were reviewed. Managing Interest-Rate Risk: the essential techniques of measuring interest-rate risk for both income and capital affects were presented. Income Gap Analysis: measures the sensitivity of a bank’s current year net income to changes in interest rate. Requires determining which assets and liabilities will have their interest rate change as market interest rates change. Let’s see how that works for First National Bank. ? 2012 Pearson Prentice Hall. All rights reserved. Copyright ? 2012 Pearson Prentice Hall. All rights reserved. PART SEVEN THE MANAGEMENT OF FinancialINSTITUTIONS Copyright ? 2012 Pearson Prentice Hall. All rights reserved. CHAPTER 23 Risk Management in Financial Institutions ? 2012 Pearson Prentice Hall. All rights reserved. 23-* ? 2012 Pearson Prentice Hall. All rights reserved. Copyright ? 2009 Pearson Prentice Hall. All rights reserved. Chapter Preview We examine how financial institutions manage credit risk, default risk, etc. We explore the tools available to managers to measure these risks and strategies to reduce them. Topics include: Managing Credit Risk Managing Interest-Rate Risk Managing Credit Risk A major part of the business of financial institutions is making loans, and the major risk with loans is that the borrow will not repay. Credit risk is the risk that a borrower will not repay a loan according to the terms of the loan, either defaulting entirely or making late payments of interest or principal. Managing Credit Risk Once again, the concepts of adverse selection and moral hazard will provide our framework to understand the principles financial managers must follow to minimize credit risk, yet make successful loans. Managing Credit Risk Solving Asymmetric Information Problems: Screening and Monitoring: collecting reliable information about prospective borrowers. This has also lead some institutions to specializ