Preface xi
CHAPTER 1 Trends in Domestic and International Banking 1
1.1 Introduction 1
1.2 Deregulation 3
1.3 Financial Innovation 4
1.4 Globalization 6
1.5 Profitability 8
1.6 The Future 16
1.7 Conclusion 19
1.8 Summary 19
Questions 20
Test Questions 21
CHAPTER 2 Financial Intermediation: The Impact of the Capital Market 23
2.1 Introduction 23
2.2 The Role of the Capital Market 24
2.3 Determination of the Market Rate of Interest 30
2.4 Summary 34
Questions 35
Test Questions 35
CHAPTER 3 Banks and Financial Intermediation 37
3.1 Introduction 37
3.2 Different Requirements of Borrowers and Lenders 38
3.3 Transaction Costs 40
3.4 Liquidity Insurance 43
3.5 Asymmetry of Information 46
3.6 Operation of the Payments Mechanism 51
3.7 Direct Borrowing from the Capital Market 51
3.8 Conclusion 52
3.9 Summary 53
Questions 53
Test Questions 53
CHAPTER 4 Banking Typology 55
4.1 Introduction 55
4.2 General Features of Banking 56
4.3 Retail Banking 59
4.4 Wholesale Banking 61
4.5 Universal Banking 63
4.6 Islamic Banking 64
4.7 Microfinance 66
4.8 Shadow Banking 68
4.9 Summary 70
Questions 70
Test Questions 70
CHAPTER 5 International Banking 71
5.1 Introduction 71
5.2 The Nature of International Banking 72
5.3 Growth of International Banking 75
5.4 The Eurocurrency Markets 77
5.5 Summary 84
Questions 84
Test Questions 85
CHAPTER 6 The Theory of the Banking Firm 87
6.1 Introduction 87
6.2 The Textbook Model 88
6.3 The Perfectly Competitive Bank 90
6.4 The Monopoly Bank 92
6.5 The Imperfect Competition Model 97
6.6 Summary 100
Questions 100
Test Questions 101
CHAPTER 7 Models of Banking Behaviour 103
7.1 Introduction 103
7.2 The Economics of Asset and Liability Management 104
7.3 Liquidity Management 104
7.4 Loan Pricing 109
7.5 Asset Management 112
7.6 The Real Resource Model of Asset and Liability Management 118
7.7 Liability Management and Interest Rate Determination 120
7.8 Summary 123
Questions 124
Test Questions 124
CHAPTER 8 Credit Rationing 125
8.1 Introduction 125
8.2 The Availability Doctrine 126
8.3 Theories of Credit Rationing 127
8.4 Asymmetric Information and Adverse Selection 129
8.5 Adverse Incentive 130
8.6 Screening versus Rationing 133
8.7 Empirical Evidence 135
8.8 The Existence of Credit Rationing 136
8.9 Summary 139
Questions 140
Test Questions 140
CHAPTER 9 Securitization 141
9.1 Introduction 141
9.2 Sales of Securities through Financial Markets 144
9.3 Asset-Backed Securitization (ABS) 146
9.4 The Process of Asset-Backed Securitization 147
9.5 The Gains from Asset-Backed Securitization 148
9.6 Conclusions 155
9.7 Summary 155
Questions 155
Test Questions 156
CHAPTER 10 Banking Efficiency and the Structure of Banking 157
10.1 Introduction 157
10.2 Measurement of Output 157
10.3 Performance Measures 159
10.4 Reasons for the Growth of Mergers and Acquisitions 169
10.5 Motives for Mergers 172
10.6 Empirical Evidence 173
10.7 Summary 179
Questions 180
Test Questions 180
CHAPTER 11 Banking Competition 181
11.1 Introduction 181
11.2 Concentration in Banking Markets 182
11.3 Structure–Conduct–Performance 184
11.4 Competition Analysis 186
11.5 Competition in the UK Banking Market 192
11.6 Summary 198
Questions 198
Test Questions 199
CHAPTER 12 Bank Regulation 201
12.1 Introduction 201
12.2 The Case for Regulation 202
12.3 The Case against Regulation 209
12.4 Regulation 215
12.5 Summary 228
Questions 228
Test Questions 228
CHAPTER 13 Banks and Money Laundering 229
13.1 Introduction 229
13.2 Scale, Scope and Typology 230
13.3 Microeconomics of Money Laundering 235
13.4 Macroeconomics of Money Laundering 241
13.5 Combating Money Laundering 242
13.6 Summary 244
Questions 245
Test Questions 245
CHAPTER 14 Risk Management 247
14.1 Introduction 247
14.2 Risk Typology 248
14.3 Interest Rate Risk Management 250
14.4 Market Risk 260
14.5 Credit Risk 270
14.6 Operational Risk 279
14.7 Risk Management and the Global Banking Crisis 279
14.8 Conclusion 283
14.9 Summary 284
Questions 284
Test Questions 285
CHAPTER 15 The Macroeconomics of Banking 287
15.1 Introduction 287
15.2 The Economics of Central Banking 288
15.3 Financial Innovation and Monetary Policy 297
15.4 Bank Credit and the Transmission Mechanism 302
15.5 Summary 309
Questions 309
Test Questions 310
References 311
Index 323
