4-30 and 5-5 lecture notes

4-30 and 5-5 lecture notes - 4/30/2009 3. Liability...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
4/30/2009 3. Liability management Asset liability management committees (ALM committees) o Goals : Stable Low cost Diversification 4. Capital adequacy a. Prevent bank failure b. Manage the impact on stockholders return c. Bank capital regulations A=L+E A<L---> insolvency EX. (loose leaf paper) Off balance sheet activities 1. Loan commitments/lines of credit 1. Contingent asset 2. Fee income 3. POTENTIAL PROBLEM 2. Letters of credit 1. Contingent liability 3. Loans sold 1. Contingent assets (written down) 4. Derivatives 1. Clients 2. Hedge 3. Speculation - Forwards - Futures - Swaps (interest rate swaps) - Options RISKY because 1. Easy to take excessive risk with minimal capital 2. Hard to see exposure 3. Agency problem Internal Controls 1. Separate trading and record keeping 2. Limit position sizes 3. Risk management a. Enterprise risk management b. Value at Risk (VAR) i. End result of VAR analysis: “1% chance of a __% loss” Income statement
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Operating income Mostly interest on loans (72%)
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

4-30 and 5-5 lecture notes - 4/30/2009 3. Liability...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online