Bank Valuation and Value Based Management: Deposit and Loan Pricing, Performance Evaluation, and Risk, 2nd Edition by Dermine, Jean;

Long description:

The definitive guide to complying with the brand-newBasel III requirements and creating sustainable value

With the Final Standard of Basel III published and implementation deadlines set, there's no better time for the revised and updated edition of the cornerstone resource bankers, bank regulators, auditors, and risk managers worldwide rely on--Bank Valuation and Value-Based Management. Whether you're complying with the new standards of practice, valuing a bank, or searching forsustainable value creation, you can do it quicker and more effectively with the insight only Jean Dermine can offer.

Renowned for his expertise in asset and liabilitymanagement, European financial markets, and banking theory, Dermine provides the most comprehensivereference available on the essence of banking--asset-liability management, with particular focus on an institution's banking book. Along with an in-depth exploration of what drives value in a bank, he equips you with his personal bank valuation model aimed at assessing decisions that enhance shareholder value. Complementing his toolbox of practical instruments for valuing banks, Dermine gives you a robust, integrated value-based management framework for addressing such managerialissues as fund transfer pricing, risk-adjusted performanceevaluation, deposit pricing, capital management, loan pricing and provisioning, securitization, and the measurement of interest-rate risk.

Relevant in banking systems across the globe, this new edition includes the latest methods and strategies for:

• Identifying the drivers of sustainable value creation
• Choosing a fund transfer price that includes liquidity and solvency risks
• Allocating economic capital to business unitsPricing deposits and loans
• Estimating the duration of nonmaturing accounts
• Allocating provisions on performing and nonperforming loans.

Throughout the book, extensive mathematical formulas and exercises ground conceptual coverage to hands-on practices. A wealth of exercises and real-world problems work to develop your intuitive sense for asset-liability management in the international banking community.

Bank Valuation and Value-Based Management, Second Edition, is your one-stop resource for all the information critical to your success.

PRAISE FOR BANK VALUATION AND VALUE BASED MANAGEMENT, Second Edition:

"Professor Dermine's book covers the full range of critical topics in banking today--valuation, pricing, and risk management. Analytical, complete, and relevant, this book is a gem! At a time of increased scrutiny of the banking industry, this volume uses an analytic approach that will serve the reader well for years to come. A must-read for anyone in the profession." -- ANTHONY M. SANTOMERO, Director, Citigroup; former president, Federal Reserve Bank of Philadelphia; Senior Advisor, McKinsey & Company; and Richard K. Mellon Professor Emeritus of Finance, the Wharton School

"Valuing banks, especially large and complex ones, poses special challenges that recent history has made abundantly clear at great cost to investors and taxpayers. This second edition of the leading volume in the field builds on its strengths as a comprehensive treatment of thekey valuation and bank management components. It is a must-read for anyone seeking to understand modern banking and finance." -- INGO WALTER, Seymour Milstein Professor of Finance, Corporate Governance, and Ethics at the Stern School of Business, New York University

"It is extraordinarily clear and very helpful for my day-to-day activity. It is significantly increasing my understanding of the bank." -- PAOLO BELTRATTI, Professor of Finance, Bocconi University, and former chairman of the management board, Intesa Sanpaolo.

"A jewel. I will recommend it." -- BRUNO COLMANT, Roland Berger, former member of

The definitive guide to complying with the brand-newBasel III requirements and creating sustainable value

With the Final Standard of Basel III published and implementation deadlines set, there's no better time for the revised and updated edition of the cornerstone resource bankers, bank regulators, auditors, and risk managers worldwide rely on--Bank Valuation and Value-Based Management. Whether you're complying with the new standards of practice, valuing a bank, or searching forsustainable value creation, you can do it quicker and more effectively with the insight only Jean Dermine can offer.

Renowned for his expertise in asset and liabilitymanagement, European financial markets, and banking theory, Dermine provides the most comprehensivereference available on the essence of banking--asset-liability management, with particular focus on an institution's banking book. Along with an in-depth exploration of what drives value in a bank, he equips you with his personal bank valuation model aimed at assessing decisions that enhance shareholder value. Complementing his toolbox of practical instruments for valuing banks, Dermine gives you a robust, integrated value-based management framework for addressing such managerialissues as fund transfer pricing, risk-adjusted performanceevaluation, deposit pricing, capital management, loan pricing and provisioning, securitization, and the measurement of interest-rate risk.

Relevant in banking systems across the globe, this new edition includes the latest methods and strategies for:

• Identifying the drivers of sustainable value creation
• Choosing a fund transfer price that includes liquidity and solvency risks
• Allocating economic capital to business unitsPricing deposits and loans
• Estimating the duration of nonmaturing accounts
• Allocating provisions on performing and nonperforming loans.

Throughout the book, extensive mathematical formulas and exercises ground conceptual coverage to hands-on practices. A wealth of exercises and real-world problems work to develop your intuitive sense for asset-liability management in the international banking community.

Bank Valuation and Value-Based Management, Second Edition, is your one-stop resource for all the information critical to your success.

PRAISE FOR BANK VALUATION AND VALUE BASED MANAGEMENT, Second Edition:

"Professor Dermine's book covers the full range of critical topics in banking today--valuation, pricing, and risk management. Analytical, complete, and relevant, this book is a gem! At a time of increased scrutiny of the banking industry, this volume uses an analytic approach that will serve the reader well for years to come. A must-read for anyone in the profession." -- ANTHONY M. SANTOMERO, Director, Citigroup; former president, Federal Reserve Bank of Philadelphia; Senior Advisor, McKinsey & Company; and Richard K. Mellon Professor Emeritus of Finance, the Wharton School

"Valuing banks, especially large and complex ones, poses special challenges that recent history has made abundantly clear at great cost to investors and taxpayers. This second edition of the leading volume in the field builds on its strengths as a comprehensive treatment of thekey valuation and bank management components. It is a must-read for anyone seeking to understand modern banking and finance." -- INGO WALTER, Seymour Milstein Professor of Finance, Corporate Governance, and Ethics at the Stern School of Business, New York University

"It is extraordinarily clear and very helpful for my day-to-day activity. It is significantly increasing my understanding of the bank." -- PAOLO BELTRATTI, Professor of Finance, Bocconi University, and former chairman of the management board, Intesa Sanpaolo.

"A jewel. I will recommend it." -- BRUNO COLMANT, Roland Berger, former member of

Table of Contents:

Introduction vii
Acknowledgments ix

Chapter 1
Discounting, Present Value, and the Yield Curve 1
Chapter 2
Coupon Bond Rate, Zero-Coupon Bond Rate, Forward Rates, andthe Shape of the Yield Curve 14
Chapter 3
Statistics: A Review 23
Chapter 4
The Economics of Banking and a Bank?s Balance Sheet and Income Statement 32

PART ONE: BANK VALUATION
Chapter 5
The Valuation of Banks, Part 1 44
Chapter 6
The Valuation of Banks, Part 2 70
Chapter 7
Economic and Strategic Drivers of Bank Valuation 93
Chapter 8
Valuation of Fee-Based Activities 110

PART TWO: VALUE-BASED MANAGEMENT
Chapter 9
Value-Based Management in Banking: An Introduction 126
Chapter 10
Fund Transfer Pricing: Foundation and Advanced Approaches 145
Chapter 11
Deposit Pricing and Repurchase Agreements 172
Chapter 12
Capital Regulation (Basel I), Economic Capital Allocation, and Loan
Pricing I (the Equity Spread) 183
Chapter 13
Capital Regulation (Basel II) 200
Chapter 14
Loss Given Default and Provisions on Nonperforming Loans 214
Chapter 15
Loan Pricing II, Loan Loss Provisions on Performing Loans, and Estimates of Probabilities of Default 226
Chapter 16
Securitization 245

PART THREE: RISK MANAGEMENT
Chapter 17
Risk Management in Banking: An Overview 262
Chapter 18
The Control of Interest-Rate Risk on the Banking Book, Part 1:The Earnings at Risk 268
Chapter 19
The Control of Interest-Rate Risk on the Banking Book, Part 2:The Economic Value at Risk 281
Chapter 20
Value at Risk in the Trading Book: The Aggregation of Risks 301
Chapter 21
Liquidity Risk and Value Creation 320
Chapter 22
The Basel III Global Regulatory Framework for More Resilient Banks and Banking Systems 336
Chapter 23
Credit Risk Portfolio Diversification: Credit Value at Risk 346
Chapter 24
Marginal Risk Contribution, Diversification, and EconomicCapital Allocation 369
Chapter 25
Forwards, Futures, Swaps, and Options: Counterparty Risk 384
Chapter 26
Credit Derivatives 404
Chapter 27
Operational Risk 418

PART FOUR: SPECIAL TOPICS
Chapter 28
Islamic Banking, Interest-Free Banking 430
Chapter 29
Prudential Regulations, Safety Nets, and Corporate Structure of International Banks (Branches versus Subsidiaries) 435

Glossary 458
Solutions to Exercises 474
References 497
Index 509