tailieunhanh - Financial Markets and Institutions: Chapter 19

Chapter 19 Bank Management: describe the underlying goal, strategy, and governance of banks, explain how banks manage liquidity, explain how banks manage interest rate risk, explain how banks manage credit risk, explain integrated bank management. | 1 1 ■ describe the underlying goal, strategy, and governance of banks ■ explain how banks manage liquidity ■ explain how banks manage interest rate risk ■ explain how banks manage credit risk ■ explain integrated bank management 19 Bank Management Chapter Objectives 2 2 Bank Goals, Strategy, and Governance Aligning Managerial Compensation with Bank Goals Banks may implement compensation programs that provide bonuses to managers that satisfy bank goals. Bank Strategy A bank’s decisions on sources of funds will heavily influence its interest expenses on the income statement. A bank’s asset structure will strongly influence its interest revenue on the income statement. How Financial Markets Facilitate the Bank’s Strategy To implement their strategy, commercial banks rely heavily on financial markets. 3 Exhibit Participation of Commercial Banks in Financial Markets 4 Bank Goals, Strategy, and Governance Bank Governance by the Board of Directors Some of the more important functions of bank directors are to: Determine a compensation system for the bank’s executives. Ensure proper disclosure of the bank’s financial condition and performance to investors. Oversee growth strategies such as acquisitions. Oversee policies for changing the capital structure, including decisions to raise capital or to engage in stock repurchases. Assess the bank’s performance and ensure that corrective action is taken if the performance is weak because of poor management. 5 Bank Goals, Strategy, and Governance Bank Governance by the Board of Directors Inside versus Outside Directors Board members who are also managers of the bank (. inside directors) may sometimes face a conflict of interests because their decisions as board members may affect their jobs as managers. Outside directors (directors who are not managers) are generally expected to be more effective at overseeing a bank: they do not face a conflict of interests in serving shareholders. 6 Bank Goals, Strategy, and Governance . | 1 1 ■ describe the underlying goal, strategy, and governance of banks ■ explain how banks manage liquidity ■ explain how banks manage interest rate risk ■ explain how banks manage credit risk ■ explain integrated bank management 19 Bank Management Chapter Objectives 2 2 Bank Goals, Strategy, and Governance Aligning Managerial Compensation with Bank Goals Banks may implement compensation programs that provide bonuses to managers that satisfy bank goals. Bank Strategy A bank’s decisions on sources of funds will heavily influence its interest expenses on the income statement. A bank’s asset structure will strongly influence its interest revenue on the income statement. How Financial Markets Facilitate the Bank’s Strategy To implement their strategy, commercial banks rely heavily on financial markets. 3 Exhibit Participation of Commercial Banks in Financial Markets 4 Bank Goals, Strategy, and Governance Bank Governance by the Board of Directors Some of the more important functions of