tailieunhanh - Lecture Financial markets and institutions - Chapter 19: Bank management

This chapter presents the following content: Bank management, managing liquidity, managing interest rate risk, managing credit risk, managing market risk, operating risk, managing risk of international operations, bank capital management, management based on forecasts, bank restructuring to manage risks, integrated bank management. | Chapter 19 Bank Management Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Bank management Managing liquidity Managing interest rate risk Managing credit risk Managing market risk Operating risk Managing risk of international operations Bank capital management Management based on forecasts Bank restructuring to manage risks Integrated bank management Bank Management The goal behind managerial policies of a bank is to maximize the wealth of the bank’s shareholders Managers may be tempted to make decisions that are in their own best interests Banks can incur agency costs Banks could provide stock as compensation to managers to maximize the bank’s stock price Banks with a low stock price may become takeover targets Bank Management (cont’d) Board of directors The board of directors oversees operations of the banks and attempts to ensure that managerial decisions are in the best interests of shareholders Bank boards tend to contain a higher percentage of outside members than boards of other types of firms Functions of bank directors are to: Determine a compensation system for bank executives Ensure proper disclosure of the financial condition and performance Oversee growth strategies such as acquisitions Oversee policies for changing capital structure Assess performance and ensure that corrective action is taken if there is weak performance Managing Liquidity Banks can experience illiquidity when cash outflows exceed cash inflows Illiquidity can be resolved by creating additional liabilities or selling assets Banks should maintain the level of liquid assets that will satisfy their liquidity needs but use their remaining funds to satisfy their other objectives Research has shown that high-performance banks are able to maintain relatively low liquidity Use of securitization to boost liquidity Securitization commonly involves the sale of assets by the bank | Chapter 19 Bank Management Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Bank management Managing liquidity Managing interest rate risk Managing credit risk Managing market risk Operating risk Managing risk of international operations Bank capital management Management based on forecasts Bank restructuring to manage risks Integrated bank management Bank Management The goal behind managerial policies of a bank is to maximize the wealth of the bank’s shareholders Managers may be tempted to make decisions that are in their own best interests Banks can incur agency costs Banks could provide stock as compensation to managers to maximize the bank’s stock price Banks with a low stock price may become takeover targets Bank Management (cont’d) Board of directors The board of directors oversees operations of the banks and attempts to ensure that managerial decisions are in the .