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Elsevier

Contemporary Financial Intermediation

  • 3rd Edition - September 2, 2015
  • Newer edition is available
  • Authors: Stuart I. Greenbaum, Anjan V. Thakor, Arnoud W. A. Boot
  • Language: English

In Contemporary Financial Intermediation, Third Edition, Greenbaum, Thakor and Boot offer a distinctive approach to financial markets and institutions, presenting an integrate… Read more

Description

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.

Key features

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

Readership

Upper-division undergraduates and graduate students worldwide in courses such as Financial Markets and Institutions, Banking, and Commercial Bank Management.

Table of contents

  • 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

Review quotes

"Since its first edition, Greenbaum, Thakor and Boot has become the standard textbook on financial intermediation, a sector 'contemporary as never before.' This revised edition nicely reflects the renewed and necessary attention given to the sector." —Steven Ongena, University of Zurich

"Contemporary Financial Intermediation provides a unified framework for understanding the role of present day financial intermediaries, their contribution to society, the risks they face, financial crises, and the role of financial regulation. A valuable book for students interested in learning about financial markets and institutions, and how the global landscape has changed."—Ravi Jagannathan, Northwestern University

Product details

About the authors

SG

Stuart I. Greenbaum

Stuart Greenbaum is the former Dean and professor emeritus at the Olin Business School at Washington University in St. Louis. He is the 2006 recipient of the Lifetime Achievement Award of the Financial Intermediation Research Society. He was named the Bank of America Professor of Managerial Leadership in 2000. Before joining the Olin School in 1995, Greenbaum served for 20 years as a faculty member of the Kellogg Graduate School of Management at Northwestern University where he was the Director of the Banking Research Center and the Norman Strunk Distinguished Professor of Financial Institutions. From 1988 to 1992, he served as Kellogg’s Associate Dean for Academic Affairs. Before Northwestern, Greenbaum served as Chairman of the Economics Department at the University of Kentucky, and on the staffs of the Comptroller of the Currency and the Federal Reserve.

Greenbaum has served on 17 corporate boards. He also served on the Dean’s Advisory Council of the Graduate Management Admission Council, and the board of AACSB International – The Association to Advance Collegiate Schools of Business, Executive Committee of the World Agricultural Forum, and on the board of the St. Louis Children’s Hospital. He was thrice appointed to the Federal Savings and Loan Advisory Council, and was twice officially commended for extraordinary public service. Greenbaum has consulted for the Ewing Marion Kauffman Foundation, the Council of Higher Education of Israel, the American Bankers Association, the Bank Administration Institute, the Comptroller of the Currency, the Federal Reserve System, and the Federal Home Loan Bank System, among others. He has on numerous occasions testified before Congressional committees, as well as other legislative bodies.

Greenbaum has published two books and more than 75 articles in academic journals and other professional media. He is founding editor of the Journal of Financial Intermediation and has served on the editorial boards of 10 other academic journals.

Affiliations and expertise
Bank of America Professor of Managerial Leadership and former Dean, John M. Olin School of Business, Washington University, St. Louis, MO, USA

AT

Anjan V. Thakor

Anjan Thakor is John E. Simon Professor of Finance, Director of Doctoral Programs, and Director of the WFA Center for Finance and Accounting Research, Olin Business School, Washington University in St. Louis. Prior to joining the Olin School, Thakor was The Edward J. Frey Professor of Banking and Finance at the Ross School of Business, University of Michigan, where he also served as chairman of the Finance area. He has served on the faculties of Indiana University, Northwestern University, and UCLA. He has consulted with many companies and organizations, including Whirlpool Corporation, Allision Engine Co., Bunge, Citigroup, RR Donnelley, Dana Corporation, AB-Inbev, Zenith Corporation, Lincoln National Corporation, J.P. Morgan, Landscape Structures, Inc., CIGNA, Borg-Warner Automative, Waxman Industries, Reuters, The Limited, Ryder Integrated Logistics, AT&T, CH2M Hill, Takata Corporation, Tyson Foods, Spartech, and the U.S. Department of Justice. Among many other honors, Dr. Thakor is the winner of the Reid MBA Teaching Excellence Award, Olin School of Business, 2005, and received the Outstanding Teacher in Doctoral Program award for the University of Michigan Business School, April 2003. He has published over 100 papers in leading academic journals in Finance and Economics, including The American Economic Review, Review of Economic Studies, Journal of Economic Theory, The Economic Journal, The RAND Journal of Economics, The Journal of Finance, The Review of Financial Studies, The Journal of Financial Intermediation, and The Journal of Financial Economics. Besides this book, he has published

nine other books. In a paper published in 2017, he was ranked as one of the five most prolific Finance authors during 2005–15.

He is a founding editor of The Journal of Financial Intermediation and one of the founders of The Financial Intermediation Research Society. He is a fellow of The Financial Theory Group. He has served as an expert witness on numerous banking cases and testified in US federal courts on issues related to bank valuation and capital structure.

Affiliations and expertise
John E. Simon Professor of Finance and Director of the PhD Program, Olin School of Business, Washington University, St. Louis, MO, USA

AB

Arnoud W. A. Boot

Arnoud Boot is professor of Corporate Finance and Financial Markets at the University of Amsterdam and research fellow at the Center for Economic Policy Research (CEPR) in London. He is a member of the Financial Economists Roundtable and fellow of the Royal Netherlands Academy of Arts and Sciences (KNAW). Arnoud Boot served on the Inaugural Advisory Scientific Committee of the European Systemic Risk Board (ESRB) and was chairman the Bank Council of the Dutch Central Bank (DNB). Earlier he was on the faculty of the Kellogg School of Management at Northwestern University, and was a partner in the Finance and Strategy Practice at McKinsey & Co. He is the past chairman of the European Finance Association and the Royal Netherlands Economics Association. In addition to his academic activities, Arnoud Boot is advisor to the Dutch government, and consultant to several financial institutions and corporations. He is a non-executive director of several corporations and agencies. His research focuses on corporate finance and financial institutions. His publications have appeared in major academic journals, such as the Journal of Finance, American Economic Review, Review of Financial Studies, and the Journal of Financial Intermediation.
Affiliations and expertise
Professor of Corporate Finance and Financial Markets, University of Amsterdam, The Netherlands

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