Analyzing Banking Risk

Hennie Van Greuning

Description

This book provides a comprehensive overview of topics focusing on assessment, analysis, and management of financial risks in banking. The publication emphasizes risk-management principles and stresses that key players in the corporate governance process are accountable for managing the different dimensions of financial risk.
This third edition remains faithful to the objectives of the original publication. A significant new edition is the inclusion of chapters on the management of the treasury function. Advances made by the Basel Committee on Banking Supervision are reflected in the chapters on capital adequacy, transparency, and banking supervision.
This publication should be of interest to a wide body of users of bank financial data. The target audience includes persons responsible for the analysis of banks and for the senior management or organizations directing their efforts.

Sujets

• Financial risk management
• Bank
• Corporate governance
• Proprietary trading
• Banks

Informations

• Publié par: world-bank-publications
• Publié le: 31 mars 2009
• Nombre de lectures: 23
• EAN13: 9780821378984
• Langue: English
• Poids de l'ouvrage: 9 Mo

Extrait

Analyzing Banking Risk
A Framework for Assessing Corporate
Governance and Risk Management
THIRD EDITION
Hennie van Greuning
Sonja Brajovic BratanovicAnalyzing Banking Risk
A Framework for Assessing
Corporate Governance and
Risk ManagementAnalyzing Banking Risk
A Framework for Assessing
Corporate Governance and
Risk Management
3rd Edition
Hennie van Greuning
Sonja Brajovic Bratanovic
WASHINGTON, D.C. © 2009 T e International Bank for Reconstruction
and Development/THE WORLD BANK
1818 H Street, N.W.
Washington, D.C. 20433
All rights reserved
Manufactured in the United States of America
First printing November 1999
Second edition April 2003
T ird edition April 2009
T e fi ndings, interpretations, and conclusions expressed in this book are entirely those of the authors and
should not be attributed in any manner to the World Bank, to its affi liated organizations, or to members
of its Board of Executive Directors or the countries they represent. T e World Bank does not guarantee
the accuracy of the data included in this publication and accepts no responsibility for any consequence of
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Design services by EEI Communications
ISBN 978-0-8213-7728-4
eISBN 978-0-8213-7898-4
DOI: 10.1596/978-0-8213-7728-4
Library of Congress Cataloging-in-Publication Data has been requested. Contents
Foreword to the T ird Edition xiii
Acknowledgments xv
1 Overview of Banking Risks 1
1.1 Introduction: T e Changing Bank Environment 1
1.2 Bank Exposure to Risk 3
1.3 Corporate Governance 4
1.4 Risk-Based Analysis of Banks 7
1.5 Analytical Tools Provided 10
2 A Framework for Risk Analysis 13
2.1 Financial Management 13
2.2 Why Banks Are Analyzed 16
2.3 Understanding the Environment in Which Banks Operate 17
2.4 T e Importance of Quality Data 24
2.5 Risk-Based Analysis of Banks 27
2.6 Analytical Tools 29
2.7 Analytical Techniques 34
3 Corporate Governance 41
3.1 Corporate Governance Principles 41
3.2 Major Developments in Corporate Governance Principles 44
3.3 Regulatory Authorities: Establishing a Risk-Based Framework 46
3.4 Supervisory Authorities: Monitoring Risk Management 48
3.5 T e Shareholders: Appointing the Right Policy Makers 51
3.6 T e Board of Directors: Ultimate Responsibility for a Bank’s Aff airs 53
3.7 Management: Responsibility for Bank Operations and the
Implementation of Risk Management Policies 59
3.8 T e Audit Committee and Internal Auditors:
An Extension of the Board’s Risk Management Function 64vi Analyzing Banking Risk
3.9 External Auditors: A Reassessment of the Traditional Approach of
Auditing Banks 66
3.10 T e Role of the General Public 67
Annex 3A: National Initiatives to Improve Corporate Governance 71
4 Balance Sheet Structure 81
4.1 Introduction: Composition of the Balance Sheet 81
4.2 Bank Assets 84
4.3 Bank Liabilities 88
4.4 Equity and Other Items 92
4.5 Growth and Changes in the Balance Sheet 94
4.6 Risk Analysis of the Balance Sheet Structure and Growth 96
5 Income Statement Structure 101
5.1 Profi tability 101
5.2 Income Statement Composition 103
5.3 Analyzing the Sources of Banking Income 107
5.4 Analyzing Quality of Earnings 109
5.5 Analysis of Profi tability Indicators and Ratios 113
5.6 Assessing Internal Performance 118
6 Capital Adequacy 121
6.1 Introduction: T e Characteristics and Functions of Capital 122
6.2 Capital Adequacy Standards and the Basel Accords 123
6.3 Constituents of Capital and Minimum Capital Requirements 127
6.4 Risk-Based Regulatory Capital Allocation: Pillar 1 131
6.5 Supervisory Review: Pillar 2 143
6.6 Market Discipline: Pillar 3 145
6.7 Management of Capital Adequacy 146
6.8 Analysis of a Bank’s Capital Adequacy 147
Annex 6A: Credit Risk–Related Weight Assignments Under
the Basel I Accord, Covered by Tier 1 and Tier 2 Capital 153
Annex 6b: Calculation of the Capital Adequacy Ratio to
Include Market Risk (Tier 3 Capital) 156
7 Credit Risk Management 161
7.1 Establishing Policies for Managing Credit Risk 161
7.2 Regulatory Policies to Limit Exposures 162
7.3 Management Policies to Reduce Credit Risk 166
7.4 Analyzing Credit Risk 171
7.5 Asset Classifi cation and Loan Loss Provisioning 177
7.6 Assessing Credit Risk Management Capacity 187 Content vii
8 Liquidity Risk Management 191
8.1 T e Need for Liquidity 191
8.2 Liquidity Management Policies 195
8.3 T e Regulatory Environment 198
8.4 T e Structure of Funding 201
8.5 Cash Flow Analysis 203
8.6 Volatility of Funding and Concentration of Deposits 207
8.7 Liquidity Risk Management Techniques 209
9 Managing Liquidity and Other Investment Portfolios 215
9.1 Nature of the Liquidity Portfolio 215
9.2 Investment Policy 216
9.3 Strategic Asset Allocation 217
9.4 Benchmark Portfolio 219
9.5 Eligible Instruments 221
9.6 Credit Risk 222
9.7 Market Risk 223
9.8 Active Management 223
9.9 Risk Budgets 225
9.10 Management Reporting 226
10 Market Risk Management 227
10.1 Sources of Market Risk: Selected Concepts 227
10.2 Measuring Interest Rate Sensitivity 231
10.3 Portfolio Risk Management 235
10.4 Market Risk Measurement: Value at Risk (VAR) as a Possible Tool 238
10.5 Risk and Performance Measurement 246
10.6 Stress Testing and Scenario Analysis 251
11 Currency Risk Management 255
11.1 Introduction: Origin and Components of Currency Risk 255
11.2 Policies for Currency Risk Management 257
11.3 Currency Risk Exposure and Business Strategy 264
11.4 Review of Currency Risk Management Procedures 268
12 Asset-Liability Management 277
12.1 Objective of Asset-Liability Management 277
12.2 Interest Rate Risk Management Responsibilities 280
12.3 Models for the Management of Interest Rate Risk in the
Balance Sheet 282
12.4 T e Impact of Changes in Forecast Yield Curves 290viii Analyzing Banking Risk
13 Operational Risk Management in a Treasury Environment 293
13.1 Operational Risk Management and the Basel Committee Initiatives 294
13.2 A Framework for Managing and Reporting Operational Risk 300
13.3 Identifi cation of Business Line Functions and Activities 306
13.4 Process Flows: Documenting the Manner in Which Functions
Are Performed 308
13.5 Risk Assessment: Contribution of People, Processes, Systems, and
External Events 309
13.6 Control Assessment 312
13.7 Key Indicators of Performance and Risk 315
13.8 Operational Risk Reporting: Analysis, Actions, and Accountability 320
Annex 13A. Overview of Functions and Activities in a
Treasury Environment 325
14 Transparency and Data Quality 339
14.1 Introduction: T e Importance of Useful Information 339
14.2 Transparency and Accountability 341
14.3 Transparency in Financial Statements 343
14.4 Disclosure in the Financial Statements of Banks 347
14.5 Application of Accounting Standards 352
15 A Risk-Based Approach to Bank Supervision 357
15.1 Introduction: T e Bank Supervisory Process 357
15.2 Banking Risks and the Accountability of Regulatory/Supervisory
Authorities 361
15.3 T e Supervisory Process 364
15.4 Consolidated Supervision 373
15.5 Supervisory Cooperation with Internal and External Auditors 377
Appendixes
A Questionnaire: Analytical Review of Banks 379
B Summary of Core Principles Evaluation 413
C Basel Core Principles for Eff ective Banking Supervision October 2006 417