Risk Management and Value Creation in Financial Institutions 1st Edition by Gerhard Schroeck ISBN 9780471254768 0471254762
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Product details:
ISBN 10: 0471254762
ISBN 13: 9780471254768
Author: Gerhard Schroeck
An analysis of the links between risk management and value creation
Risk Management and Value Creation in Financial Institutions explores a variety of methods that can be utilized to create economic value at financial institutions. This invaluable resource shows how banks can use risk management to create value for shareholders, addresses the advantages of risk-adjusted return on capital (RAROC) measures, and develops the foundations for a model to identify comparative advantages that emerge as a result of risk-management decisions. It is the only book needed for banking executives interested in the relationship between risk management and value creation.
Table of contents:
INTRODUCTION
2. FOUNDATIONS FOR DETERMINING THE LINK BETWEEN RISK MANAGEMENT AND VALUE CREATION IN BANKS
Value Maximization in Banks
Value Maximization as the Firm’s Objective
Valuation Framework for Banks
Problems with the Valuation Framework for Banks
Empirical Conundrum
Other Stakeholders’ Interests in Banks
Risk Management in Banks
Definition of Risk
Definition of Risk Management
Role and Importance of Risk and Its Management in Banks
Link between Risk Management and Value Creation in Banks
Goals of Risk Management in Banks
Choice of the Goal Variable
Choice of the Stakeholder Perspective
Choice of the Risk Dimension
Choice of the Risk-Management Strategy
3. Ways to Conduct Risk Management in Banks
Eliminate/Avoid
Transfer
Absorb/Manage
Empirical Evidence
Summary
Appendix:
Part A: Bank Performance
Part B: Systematic versus Specific Risk
4. RATIONALES FOR RISK MANAGEMENT IN BANKS
Risk Management and Value Creation in the Neoclassical Finance Theory
The Neoclassical Finance Theory
Corollaries from the Neoclassical Finance Theory with Regard to Risk Management
The Risk Management Irrelevance Proposition
Summary and Implications
Discrepancies Between Neoclassical Theory and Practice
Risk Management and Value Creation in the Neoinstitutional Finance Theory
Classification of the Relaxation of the Assumptions of the Neoclassical World
The Central Role of the Likelihood of Default
Agency Costs as Rationale:
Agency Costs as Rationale for Risk Management
Agency Costs of Equity as a Rationale for Risk Management
Agency Costs of Debt as a Rationale for Risk Management
Coordination of Investment and Financing
Other Rationales:
Transaction Costs as a Rationale for Risk Management
The Costs of Financial Distress
The Costs of Implementing Risk Management
The Costs of Issuance
The Costs of a Stable Risk Profile
Taxes and Other Market Imperfections as Rationales for Risk Management
Taxes
Other Market Imperfections
Additional Rationales for Risk Management in Banks
Summary and Conclusions
Appendix
5. IMPLICATIONS OF THE PREVIOUS THEORETICAL DISCUSSION FOR THIS BOOK
IMPLICATIONS OF THE PREVIOUS THEORETICAL DISCUSSION FOR THIS BOOK
6. CAPITAL STRUCTURE IN BANKS
The Role of Capital in Banks
Capital as a Means for Achieving the Optimal Capital Structure
Capital as Substitute for Risk Management to Ensure Bank Safety
The Various Stakeholders’ Interests in Bank Safety
Available Capital
Required Capital from an Economic Perspective
Determining Capital Adequacy in the Economic Perspective
Summary and Consequences
Derivation of Economic Capital:
Types of Risk
Economic Capital as an Adequate Risk Measure for Banks
Ways to Determine Economic Capital for Various Risk Types in Banks (Bottom-Up)
Credit Risk
Market Risk
Operational Risk
Aggregation of Economic Capital across Risk Types
Concerns with the Suggested Bottom-Up Approach
Suggestion of an Approach to Determine Economic Capital from the Top Down
Theoretical Foundations
Suggested Top-Down Approach
Assessment of the Suggested Approach
Evaluation of Using Economic Capital
Summary
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Tags: Gerhard Schroeck, Risk Management, Value Creation