《金融市场与机构 Jeff Madura》ch19.pptVIP

19 Bank Management Chapter Objectives Describe the underlying goal of bank management Discuss how banks manage liquidity Evaluate how banks manage interest rate risk Look at the techniques to manage credit risk Explain how banks manage capital Goal of Bank Management The underlying goal of bank management is to maximize the wealth of the bank’s shareholders Maximizing the share price Agency costs Investor costs incurred to promote managers’ interest in serving investors’ interest Managers need incentives to seek shareholder’s best interests Takeover target if stock price undervalued Risks Faced By Banks Managing Liquidity Risk Risk of variability of return impacted by cost of providing liquidity for deposit outflows and/or loan demand Maintain liquid assets and ability to borrow in financial markets Securitizing loans provide liquidity Must forecast future cash flows Managing Liquidity Use of securitization to boost liquidity Selling off loans to trustee Mortgage and automobile loans Trustee issues securities collateralized by the assets Loan payments pass through to holders of securities Securitization turns future cash flows into immediate cash Risk level related to guarantee provided to trust Managing Interest Rate Risk Risk of variability of returns caused by changing market interest rates Interest rate risk comprised of price risk and reinvestment risk Price risk = variability of returns caused by varying prices of assets Security and loan values vary inversely with changes in market rates Managing Interest Rate Risk Reinvestment risk = variability of return caused by changing interest rates on the reinvested coupon of securities or loans Reinvestment risk and price risk cause realized returns to vary from expected Price risk and reinvestment risk have an opposite impact on realized return when market interest rates change Managing Interest Rate Risk Causes variability in net interest income (NII) and net interest margin (NIM) NII = interest income - interest