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Bank Management Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Bank Management 88ee Timothy W. Koch University of South Carolina S. Scott MacDonald Southern Methodist University Australia•Brazil•Japan•Korea•Mexico•Singapore•Spain•UnitedKingdom•UnitedStates Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for materials in your areas of interest. Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 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Purchaseanyofourproductsatyourlocalcollegestoreoratour preferredonlinestorewww.cengagebrain.com. Printed in the United States of America Print Number: 01 Print Year: 2014 Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Dedication ToSusan,MichalaandAndyforallthejoysoffamily. TimothyW.Koch Tomyfamily,Becky,Cassy,Erin,JeffandWestonfortheirnever-ending supportandencouragement. S.ScottMacDonald Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Contents Preface ......................................................................xiii About the Authors.............................................................xx Chapter 1 Banking and the Financial Services Industry.................................... 1 GlobalFinancial Crisisof2007–2009 2 HowDoBanksDiffer? 7 OrganizationalStructure 15 FinancialServicesBusinessModels 18 TooBigtoFailBanks 23 DifferentChannelsforDeliveringBankingServices 25 Summary 26 Questions 27 Activities 28 References 28 Chapter 2 Government Policies and Regulation .......................................... 31 HistoricalBankRegulation 32 GoalsandFunctions ofDepositoryInstitutionRegulation 32 EnsureSafetyandSoundnessandProvideanEfficient andCompetitiveSystem 34 NewCharters 35 ShortcomingsofRestrictiveBankRegulation 44 MaintainingMonetary StabilityandtheIntegrityofthePaymentsSystem 44 EfficientandCompetitiveFinancialSystem 50 TooBigToFail 60 Summary 63 Questions 64 Activities 65 References 65 Chapter 3 Analyzing Bank Performance ................................................. 67 CommercialBankFinancial Statements 69 TheRelationshipbetweentheBalanceSheetandIncomeStatement 90 TheReturnonEquity Model 91 ManagingRiskandReturns 100 FinancialStatement Manipulation 131 Summary 134 Questions 134 Problems 136 References 137 Appendix 139 vii Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. viii Contents Chapter 4 Managing Noninterest Income and Noninterest Expense....................... 159 NoninterestIncome 164 NoninterestExpense 169 WhichLinesofBusinessandCustomers AreProfitable? 174 Summary 184 Questions 185 Activity 186 References 186 Chapter 5 The Performance of Nontraditional Banking Companies ...................... 189 TheDisappearanceofLargeInvestmentBanks 191 GoldmanSachsGroup,Inc.,andGoldmanSachsBankUSA 193 TheFinancialPerformanceofMutualofOmahaBank 202 TheFinancialPerformanceofBMWFinancialServicesandBMWBankofNorthAmerica 205 Summary 209 Questions 210 Activities 210 References 211 Chapter 6 Pricing Fixed-Income Securities.............................................. 213 TheMathematics ofInterestRates 214 SimpleversusCompoundInterest 217 TheRelationshipbetweenInterestRatesandOption-FreeBondPrices 219 DurationandPriceVolatility 224 RecentInnovationsintheValuationofFixed-IncomeSecuritiesandTotalReturnAnalysis 229 MoneyMarketYields 233 Summary 236 Questions 237 Activities 239 References 240 Chapter 7 Managing Interest Rate Risk: GAP and Earnings Sensitivity ................... 241 MeasuringInterestRateRiskwithGAP 245 EarningsSensitivity Analysis 263 IncomeStatement GAP 272 ManagingtheGAPandEarningsSensitivityRisk 274 Summary 275 Questions 276 Activities 279 References 281 Chapter 8 Managing Interest Rate Risk: Economic Value of Equity....................... 283 MeasuringInterestRateRiskwithDurationGap 285 EconomicValueofEquitySensitivityAnalysis 295 EarningsSensitivity AnalysisversusEVESensitivityAnalysis:WhichModelIsBetter? 298 Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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