Better Banking

Why did the financial crisis happen? Why did no one see it coming? And how did our banks lose so much of our money? What's being done to sort out the banking industry? And will it work? These are the questions that industry experts Adrian Docherty and Franck Viort cover in Better Banking.

Acknowledgements xi 1 Introduction 1 1.1 Overview and Objectives 1 1.2 Quick Start Guide to Banking Concepts and Regulation 4 2 The Global Financial Crisis 7 2.1 From Deregulation to dotcom Crash 7 2.2 The Seeds of a Crisis 9 2.3 Why Didn t Anyone See This Coming? 14 2.4 The Beginnings of a Crisis 17 2.5 The Crisis Intensifies 20 2.6 Meltdown: The Lehman Bankruptcy 21 2.7 Massive Intervention Internationally 23 2.8 Sovereign Crises 29 2.9 Aftershocks and Skeletons in the Cupboard 32 2.10 Who is to Blame? 34 3 Methodologies and Foundations 37 3.1 How do Banks Make or Lose Money? 37 3.2 What s a Bank Worth? Key Issues in Accounting for Banks 41 3.3 What is Risk? 47 3.4 What is an RWA? 55 3.5 What is Capital? 61 3.6 What are Liquidity and Funding? 68 3.7 What is a Derivative? 84 3.8 Mark-to-Market and Procyclicality 90 3.9 Role of Regulation, Supervision and Support 96 3.10 Ratings Agencies and Credit Ratings 101 3.11 Analysts, Investors and Financial Communication 109 4 Regulation of the Banking Industry 113 4.1 The Relevance of Bank Regulation and Supervision 113 4.2 Regulation and Supervision of the Banking Industry Prior to Basel I 113 4.3 The Basel Capital Accord aka Basel I 117 4.4 Basel II 122 4.5 Basel III 141 4.6 Resolution Regimes 163 4.7 Other Current Regulatory Workstreams 171 5 Case Studies 175 5.1 RBS 176 5.2 Dexia 179 5.3 HBOS 184 5.4 HSBC 189 5.5 Bear Stearns 192 5.6 Merrill Lynch 196 5.7 AIG 200 5.8 JP Morgan 207 5.9 Barclays 213 5.10 UBS 217 5.11 Northern Rock 221 5.12 Bankia-BFA 223 5.13 Australia 228 5.14 Canada 233 5.15 Summary of Lessons Learned from the Case Studies 236 6 Objectives and Design Principles 239 6.1 Free Market versus State Capitalism 240 6.2 Are There Alternatives to Banks? 242 6.3 Benefi ts and Limitations of Finance 250 6.4 How Much Risk Can We Tolerate? 251 6.5 The Role of Regulation and Supervision 254 6.6 The Role of the Market 256 6.7 Conclusions: Proposed Objectives and Design Criteria 258 7 A Blueprint for Basel IV 259 7.1 Risk Management 261 7.2 The Guardian Angel 269 7.3 Human Capital 275 7.4 Governance 287 7.5 Capital 291 7.6 Liquidity and Funding 299 7.7 The Pillar 2 Mindset 303 7.8 Glasnost: Market Discipline and Pillar 3 311 7.9 Industry Structure 313 8 Challenges 327 8.1 Industry Entrenchment 327 8.2 Human Behaviour 329 8.3 Performance Management for Good Risk Management 332 8.4 Timing 333 8.5 A Positive Challenge: Technological and Social Progress 333 9 What Next? A Call to Arms 335 Glossary & Jargon Lookup 339 Disclaimer Regarding Excerpts from S&P Materials 349 Index 351