Contemporary Financial Intermediation

In Contemporary Financial Intermediation, Third Edition, Greenbaum, Thakor and Boot offer a distinctive approach to financial markets and institutions, presenting an integrated portrait that puts information at the core.

Instead of simply naming and describing markets, regulations, and institutions as competing books do, the authors explore the endless subtlety and plasticity of financial institutions and credit markets.

This edition has six new chapters and increased, enhanced pedagogical supplements. The book is ideal for anyone working in the financial sector, presenting professionals with a comprehensive understanding of the reasons why markets, institutions, and regulators act as they do. Readers will find an unmatched, thorough discussion of the world's financial markets and how they function.

Provides a distinctive and thought-provoking approach to the world's financial marketsExplores the endless subtleties and plasticity of financial institutions and credit marketsNewly revised, with six new chapters and increased pedagogical supplementsPresents anyone working in the financial markets and sector with a comprehensive understanding of the inner workings of world markets

• Preface
• Acknowledgments
• About the Authors
• Introduction
• Part I: The Background
  • Chapter 1: Basic Concepts
    • Abstract
    • Introduction
    • Risk Preferences
    • Diversification
    • Riskless Arbitrage
    • Options
    • Market Efficiency
    • Market Completeness
    • Asymmetric Information and Signaling
    • Agency and Moral Hazard
    • Time Consistency
    • Nash Equilibrium
    • Revision of Beliefs and Bayes Rule
    • Liquidity
    • Systemic Risk
    • Disagreement
    • Mark-to-Market Accounting
• Part II: What is Financial Intermediation?
  • Chapter 2: The Nature and Variety of Financial Intermediation
    • Abstract
    • Glossary of Terms
    • Introduction
    • What are Financial Intermediaries?
    • The Variety of Financial Intermediaries
    • Depository Financial Intermediaries
    • Investment Banks: Key Nondepository Intermediaries in the Capital Market
    • Separation Between Investment Banks and Commercial Banks Undone
    • Other Nondepository Intermediaries
    • Credit Rating Agencies
    • The Role of the Government
    • Financial Intermediaries on the Periphery
    • Conclusion
    • Review Questions
    • Appendix 2.1. Measurement Distortions and the Balance Sheet
  • Chapter 3: The What, How, and Why of Financial Intermediaries
    • Abstract
    • Glossary of Terms
    • Introduction
    • How Does the Financial System Work?
    • Business Financing: Debt
    • Fractional Reserve Banking and the Goldsmith Anecdote
    • A Model of Banks and Regulation
    • The Macroeconomic Implications of Fractional Reserve Banking: the Fixed Coefficient Model
    • Large Financial Intermediaries
    • How Banks can Help to Make Nonbank Financial Contracting More Efficient
    • The Empirical Evidence: Banks are Special
    • Ownership Structure of Depository Financial Institutions
    • The Borrower’s Choice of Finance Source
    • Conclusion
    • Review Questions
    • Appendix 3.1. The Formal Analysis of Large Intermediaries
    • Appendix 3.2. Definitions
• Part III: Identification and Management of Major Banking Risks
  • Chapter 4: Bank Risks
    • Abstract
    • Glossary of Terms
    • Introduction
    • Basic Banking Risks
    • Credit, Interest Rate, and Liquidity Risks
    • Enterprise Risk Management
    • Conclusion
    • Review Questions
  • Chapter 5: Interest Rate Risk
    • Abstract
    • Glossary of Terms
    • Introduction
    • The Term Structure of Interest Rates
    • The Lure of Interest Rate Risk and Its Potential Impact
    • Duration
    • Convexity
    • Interest Rate Risk
    • Conclusion
    • Case Study: Eggleston State Bank
  • Chapter 6: Liquidity Risk
    • Abstract
    • Glossary of Terms
    • Introduction
    • What, After All, is Liquidity Risk?
    • Some Formal Definitions of Liquidity
    • The Management of Liquidity Risk
    • The Difficulty of Distinguishing Between Liquidity and Insolvency Risks and the LLR’s Conundrum
    • Conclusion
    • Review Questions
    • Appendix 6.1. Dissipation of Withdrawal Risk Through Diversification
    • Appendix 6.2. Lender-of-Last-Resort Moral Hazard
• Part IV: “On Balance Sheet” Banking Activities
  • Chapter 7: Spot Lending and Credit Risk
    • Abstract
    • Glossary of Terms
    • Introduction
    • Description of Bank Assets
    • What is Lending?
    • Loans Versus Securities
    • Structure of Loan Agreements
    • Informational Problems in Loan Contracts and the Importance of Loan Performance
    • Credit Analysis: the Factors
    • Sources of Credit Information
    • Analysis of Financial Statements
    • Loan Covenants
    • Conclusion
    • Case Study: Indiana Building Supplies, Inc
    • Review Questions
  • Chapter 8: Further Issues in Bank Lending
    • Abstract
    • Glossary of Terms
    • Introduction
    • Loan Pricing and Profit Margins: General Remarks
    • Credit Rationing
    • The Spot-Lending Decision
    • Long-Term Bank-Borrower Relationships
    • Loan Restructuring and Default
    • Conclusion
    • Case Study: Zeus Steel, Inc.
    • Review Questions
  • Chapter 9: Special Topics in Credit: Syndicated Loans, Loan Sales, and Project Finance
    • Abstract
    • Glossary of Terms
    • Introduction
    • Syndicated Lending
    • Project Finance
    • Conclusion
    • Review Questions
• Part V: Off the Bank’s Balance Sheet
  • Chapter 10: Off-Balance Sheet Banking and Contingent Claims Products
    • Abstract
    • Glossary of Terms
    • Introduction
    • Loan Commitments: a Description
    • Rationale for Loan Commitments
    • Who is Able to Borrow Under Bank Loan Commitments?
    • Pricing of Loan Commitments
    • The Differences Between Loan Commitments and Put options
    • Loan Commitments and Monetary Policy
    • Other Contingent Claims: Letters of Credit
    • Other Contingent Claims: Swaps
    • Other Contingent Claims: Credit Derivatives
    • Risks for Banks in Contingent Claims
    • Regulatory Issues
    • Conclusion
    • Case Study: Youngstown Bank
    • Review Questions
  • Chapter 11: Securitization
    • Abstract
    • Glossary of Terms
    • Introduction
    • Preliminary Remarks on the Economic Motivation for Securitization and Loan Sales
    • Different Types of Securitization Contracts
    • Going Beyond Preliminary Remarks on Economic Motivation: the “Why,” “What,” and “How Much is Enough” of Securitization
    • Strategic Issues for a Financial Institution Involved in Securitization
    • Comparison of Loan Sales and Loan Securitization
    • Conclusion
    • Case Study: Lone Star Bank
    • Review Questions
• Part VI: The Funding of the Bank
  • Chapter 12: The Deposit Contract, Deposit Insurance, and Shadow Banking
    • Abstract
    • Glossary of Terms
    • Introduction
    • The Deposit Contract
    • Liability Management
    • Deposit Insurance
    • The Great Deposit Insurance Debacle
    • Funding in the Shadow-Banking Sector
    • Conclusion
    • Review Questions
  • Chapter 13: Bank Capital Structure
    • Abstract
    • Glossary of Terms
    • Introduction
    • Does the M&M Theorem Apply to Banks? Dispelling Some Fallacies
    • The Theories of Bank Capital Structure
    • Empirical Evidence on Bank Capital, Bank Lending, and Bank Value
    • Why Then do Banks Display a Preference for High Leverage?
    • Bank Capital and Regulation
    • Conclusion
    • Review Questions
• Part VII: Financial Crises
  • Chapter 14: The 2007-2009 Financial Crisis and Other Financial Crises
    • Abstract
    • Glossary of Terms
    • Introduction
    • What Happened
    • Cause and Effect: The Causes of the Crisis and its Real Effects
    • The Policy Responses to the Crisis
    • Financial Crises in Other Countries and Regulatory Interventions
    • Conclusion
• Part VIII: Bank Regulation
  • Chapter 15: Objectives of Bank Regulation
    • Abstract
    • Glossary of Terms
    • Introduction
    • The Essence of Bank Regulation
    • The Agencies of Bank Regulation
    • Safety and Soundness Regulation
    • Stability: Macroprudential Regulation
    • Market Structure, Consumer Protection, Credit Allocation, and Monetary Control Regulation
    • Conclusion
    • Review Questions
  • Chapter 16: Milestones in Banking Legislation and Regulatory Reform
    • Abstract
    • Glossary of Terms
    • Introduction
    • Milestones of Banking Legislation
    • Problems of Bank Regulation
    • The 1991 FDICIA and Beyond
    • The Financial Services Modernization Act of 1999
    • The Dodd-Frank Wall Street Reform and Consumer Protection Act
    • EU Regulatory and Supervisory Overhaul and the De Larosière Report
    • Conclusion
    • Review Questions
    • Appendix
• Part IX: Financial Innovation
  • Chapter 17: The Evolution of Banks and Markets and the Role of Financial Innovation
    • Abstract
    • Glossary of Terms
    • Introduction
    • Financial Development
    • Financial Innovation
    • The Dark Side of Financial Innovation
    • Banks and Financial Markets
    • Bank Versus Market: Complementarities and Shadow Banking
    • Role of Credit-Rating Agencies
    • Conclusion
    • Review Questions
• Part X: The Future
  • Chapter 18: The Future
    • Abstract
    • Glossary of Terms
    • Introduction
    • Change Drivers
    • Initiatives that are Changing the Landscape
    • Are Banks Doomed?
    • Conclusion
• Subject Index