Modern Banking Shelagh Heffernan Professor of Banking and Finance, Cass Business School, City University, London Modern Banking Shelagh Heffernan Professor of Banking and Finance, Cass Business School, City University, London Copyright  2005 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (+44) 1243 779777 Email (for orders and customer service enquiries): cs-books@wiley.co.uk Visit our Home Page on www.wileyeurope.com or www.wiley.com All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher Requests to the Publisher should be addressed to 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Anniversary Year ABOUT THE AUTHOR Professor Shelagh Heffernan is currently Professor of Banking and Finance at Cass Business School, City University, London and has been a visiting Professor at several universities Modern Banking is her fourth book A former Commonwealth Scholar at Oxford University, Professor Heffernan is also a past beneficiary of a Leverhulme Trust Research Award, which funded new research on competition in banking, and recently received a second award from the Leverhulme Trust She publishes in top academic journals – her paper, ‘How UK Institutions Really Price their Banking Products?’ (Journal of Banking and Finance) was chosen as one of the top 50 published articles by Emerald Management Review Current research includes: SMEs and banking services, the conversion of mutuals to bank stock firms, monetary policy and pass through (funded by an ESRC grant), and M&As in banking Professor Heffernan is an Associate Member of the Higher Education Academy and has received two Distinguished Teaching and Learning awards CONTENTS ACKNOWLEDGEMENTS ix PREFACE xi CHAPTER What are Banks and What Do They Do? 1.1 Introduction 1.2 The Meaning of Banking 1.3 Organisational Structures 1.4 Banking Structures 1.5 Financial Conglomerates 1.6 Central Banking 1.7 Summary: Why are Banks Special? 1.8 Conclusion 1 15 26 29 36 38 CHAPTER Diversification of Banking Activities 2.1 Introduction 2.2 The Expansion of Banks into Non-banking Financial Services 2.3 The Effect of Non-interest Income on Banks’ Total Income 2.4 Global Markets and Centres 2.5 International Banking 2.6 Banking Issues in the 21st Century 2.7 Conclusion 41 41 41 51 55 64 72 98 CHAPTER Management of Risks in Banking 3.1 Introduction 3.2 Key Financial Risks in the 21st Century 3.3 Approaches to the Management of Financial Risks 3.4 Financial Derivatives and Risk Management 3.5 Management of Market Risk 101 101 103 113 125 142 [ vi ] CONTENTS 3.6 3.7 3.8 Management of Credit Risk 155 Risk Management by Major Global Bank 169 Conclusion 171 CHAPTER Global Regulation of Banks 4.1 Introduction 4.2 Why Regulate? 4.3 International Regulation 4.4 Basel – The Three Pillar Approach 4.5 Alternative or Complementary Approaches to Basel 4.6 International Financial Architecture 4.7 Conclusion 173 173 173 179 192 210 213 219 CHAPTER Bank Structure and Regulation: UK, USA, Japan, EU 5.1 Introduction 5.2 Bank Structure and Regulation in the UK 5.3 Bank Structure and Regulation in the USA 5.4 Bank Structure and Regulation in Japan 5.5 Bank Structure and Regulation in the EU 5.6 Conclusions: Structure and Regulation of Banks 221 221 222 242 258 262 285 CHAPTER Banking in Emerging Economies 6.1 Introduction 6.2 Financial Repression and Evolving Financial Systems 6.3 Banking Reforms in Russia, China and India 6.4 Islamic Banking 6.5 Sovereign and Political Risk Analysis 6.6 Conclusion 287 287 288 293 322 332 347 CHAPTER Bank Failures 7.1 Introduction 7.2 Bank Failure – Definitions 7.3 Case Studies on Bank Failure 7.4 The Determinants of Bank Failure: A Qualitative Review 7.5 Bank Failure: Quantitative Models 7.6 Conclusion 351 351 351 358 390 399 405 [ vii ] CONTENTS CHAPTER Financial Crises 8.1 Introduction 8.2 Definitions and Controversies 8.3 The South East Asian Financial Crisis, 1997–99 8.4 The Japanese Banking Crisis 8.5 Scandinavian Banking Crises 8.6 Long Term Capital Management (LTCM) 8.7 Lender of Last Resort 8.8 Conclusions Appendix 8.1 Japanese Financial Reforms (Big Bang, 1996) Appendix 8.2 Reform of the Regulators 407 407 407 415 434 449 454 459 466 467 470 CHAPTER Competitive Issues in Banking 9.1 Introduction 9.2 Measuring Bank Output 9.3 X-efficiency, Scale Economies and Scope Economies 9.4 Empirical Models of Competition in Banking 9.5 Consolidation in the Banking Sector 9.6 Conclusion 473 473 473 477 494 517 538 CHAPTER 10 Case Studies 10.1 Introduction 10.2 Goldman Sachs Appendix 10.3 Kidder Peabody Group 10.4 From Sakura to Sumitomo Mitsui Financial Group 10.5 Bancomer: A Study of an Emerging Market Bank ´ 10.6 Credit Lyonnais 10.7 Continental Illinois Bank and Trust Company 10.8 Bankers Trust: From a Commercial/Investment Bank to Takeover by Deutsche Bank 541 541 542 560 564 570 582 595 617 631 REFERENCES/BIBLIOGRAPHY 653 INDEX 682 [ 702 ] INDEX lenders of last resort (LLRs) xvii, 33–6, 181, 237–8, 245–6, 285–6, 365, 459–67 concepts 33–6, 181, 237–8, 245–6, 285–6, 365, 459–67 debates 459–64 IMF 463–7 international calls 460, 463–7 Lerner indices 505–6 less developed countries (LDCs), concepts 287, 416 letters of credit 42, 182–3 LGDs see loss given defaults liabilities 1–39 Libor see London Interbank Offered Rate life insurance 16–18, 514–16 lifeboat rescues see also lenders of last resort concepts 33, 162, 179–81, 237–8, 246, 366–7, 381, 396 LIFFE see London International Financial and Futures Exchange LINK 11 liquidations see also failures concepts 351–3 liquidity risk ALM 124–5 concepts xv, 9–10, 104, 105–6, 111, 124–5, 141, 329 definition 105–6, 124 liquidity services xii, xi–xiv, 1, 3–39, 66, 72, 87, 89, 176, 353–4, 474 customer requirements 3–5 future prospects 87, 89 Lithuania 288–9 Lloyds TSB 11, 174, 222–42, 511, 535 LLRs see lenders of last resort loan-growth rates, bank failures 404 loans xiii–xiv, 1–39, 87, 103–72, 182–219, 230–5, 287–351, 404, 417–36, 441–50, 473–539, 581–94 CLOs 48–51 concepts xiii–xiv, 1–39, 87, 103–72, 182–6, 195–219, 404 credit risk xiv–xv, 102–3, 104–5, 112–13, 128, 135–8, 142–72, 182–219 demand/supply curves 1–3, distinction emerging markets 333–47, 410–11, 417–36 portfolios 3, 8, 45–6, 53, 56–7 syndicated loans 4–5, 24, 41 local authorities 57, 182–3 locational efficiency, concepts 68 logit approach 339, 393–406 London, key financial centres 59–64, 221–42 London Interbank Offered Rate (Libor) 134, 510–14 London International Financial and Futures Exchange (LIFFE) 42, 126–8 London Stock Exchange (LSE) 22–3, 59–64, 227–30 Long Term Capital Management (LTCM) xvii, 50–1, 154–5, 174–5, 212, 407, 454–60, 461, 557 background 454–60, 462, 557 objectives 454–6 long-term assets, definition 55–6 looting hypothesis 177, 355–6, 394 loss given defaults (LGDs) 163–6, 197–219 LSE see London Stock Exchange LTCM see Long Term Capital Management Luxembourg 13–15, 51–5, 74–85, 181, 282–4, 362–3, 395, 482, 490–2, 494 M&As see mergers and acquisitions Maastricht Treaty 1991 35, 282–4 McFadden Act 1927, USA 256 macroeconomic issues see also economic cycles concepts 30–6, 37, 90–1, 101, 105–6, 175–9, 215, 404–5, 434–50, 454–5 e-cash 90–1 Japan 447–50 risk management 101, 105–6 main themes xiii–xv Major Financial Groups Division (MFGD) 27 Malaysia xii, 209, 288–9, 323–4, 330–2, 413, 415–36, 465–6 management issues see also risk compensation 531–2 [ 703 ] INDEX failures 390–3 M&As 518–38 principal-agent problems 6–7, 38, 225, 353–6, 531–3 styles 640–1 X-efficiencies 477–94 manias 408–10 see also crises marginal costs 487–8, 505–8 economies of scale 487–8 Lerner indices 505–6 marked to market approaches, credit risk 166–8 market discipline, Basel Accord 194–5, 198, 203–10 market imperfections, concepts 68–71 market makers concepts 5, 22, 55–6, 227–30 definition 55–6 market power 11, 68–9, 88–9, 101, 173–4, 178, 246, 293–4, 303–4, 478, 495–6, 495–514, 519–20, 529–31 market risk xv, 102–3, 104, 107–9, 112–72, 186–219, 329, 581–94 see also currency risk; interest-rate risk Basel Accord 194–219, 393 Basel Amendment (1996) 186–92 concepts 104, 107–9, 112–13, 124, 141, 142–55, 169–71, 186–219 definition 107–8, 186–7 internal models 187–9, 194–219 management 142–55, 169–71, 186–219 RAROC xv, 103, 142–6, 189, 198, 635–44 Riskmetrics 142, 146–55, 187–9 scenario analysis 154–5 stress testing 154–5, 203, 204–5 types 104, 107–8, 186–92 VaR xv, 101–3, 142, 146–55, 166–8, 187–92, 198, 211, 456–60, 553–5 market risk multipliers (MRMs) 188–9 market shares 60–1, 495–509 market structures concepts 3, intermediation services market-discipline pillar, Basel Accord 194–219 markets see also financial markets concepts 55–6 Marks & Spencer 97–8 Mastercard 11, 89, 98 see also Europay Matif 127 maturity concepts 55–6, 105–6, 108–9, 118–24, 191–2, 197–219 gap concepts 119–24 matching practices 105–6, 108–9 maturity ladders, concepts 124–5, 185, 191–2 Maxwell, Robert 6, 111, 156, 238, 606 MBAs xiii, xxi MBSs see mortgage-backed securities medium-term financial instruments, definition 55–6 memoranda of understanding (MOU) 215, 237, 241, 285–6, 460–2 merchant banks concepts xiv, 22–3, 27, 67–8, 71, 222–42, 422, 425 roles 22–3 mergers and acquisitions (M&As) xiii, xvii–xviii, 16–20, 23, 58–9, 96, 98, 174, 251–60, 266–71, 279–1, 311, 440–50, 473, 492, 506, 517–38, 560, 568–81 see also synergies abnormal returns 521–5 announcement effects 520–5 background 517–38, 560, 568–81 case studies 534–8 competition 519–10, 529–31 critique 517–38 economies of scale/scope 491–2, 517–21 efficiency issues 492, 517–21, 525–9 empirical studies 520–1 management issues 519–38 market power 519–20, 529–31 performance issues 520, 525–9 politics 537–8 reasons 519–20, 569–71 regulations 174 rescues 352–8, 425–36, 440–2 returns 521–9 [ 704 ] INDEX mergers and acquisitions (M&As) (continued) risk 533–4 statistics 98, 491–2, 517–38 stock markets 58–9, 537 stock prices 537 synergies xiii, 484–5, 517, 564–8 systemic risk 520, 533–4 trends xiii, xvii–xviii, 16–17, 58–9, 86, 96, 98, 266–71, 473, 491–2, 517–38 types 517–19, 527–9 Merrill Lynch 20–1, 24, 140, 149–50, 175, 244–51 Metallgesellschaft 140–1 Mexico xviii, 69–70, 275, 288–9, 291, 300, 336, 338–41, 345–7, 359–60, 413, 424, 463–7, 581–94 MFGD see Major Financial Groups Division microeconomic issues concepts xi–xii, 105–6, 176–219 regulations 176–219 Midland Bank 67, 511 migration, concepts 163–6 Ministry of Finance (MoF), Japan 258–64, 434–50, 569–82 Mitghmar Egypt Savings Association 323–4 mitigants, credit risk 199–200 Mitsubishi Tokyo FG 439–50 Mitsui Bank 67, 439–40, 570 Mizuho Financial Group 439–41 MNEs see multinational enterprises Modern Banking in Theory and Practice (author) xiii MoF see Ministry of Finance Moldova 305 Mondex 86 monetary policy 30–6, 73, 90–1, 175–6, 259–64, 307 Monetary Policy Committee, UK 31–2, 34, 36, 231–2, 283–4 monetary-control roles, central banks 30–6, 307 money laundering 236, 272–3, 299 money markets, definition 55–6, 57 money supply, concepts 30–6, 175–6 monitoring costs, intermediation 2–5, 37 monitoring roles, firms monopoly situations 11, 68–9, 88–9, 101, 173–4, 178, 246, 293–4, 303–4, 478, 495–517, 529–31 Monte Carlo approach concepts 148, 171 VaR 148 Moody’s 162, 206, 329–30 moral hazard, concepts 7, 38, 66, 177, 241–2, 254–6, 300, 335–7, 396, 433, 461–3 Morgan Grenfell 19, 222 Morgan Stanley 21, 175 mortgage corporations 97 mortgage-backed securities (MBSs) concepts 46–51, 97–8 statistics 46–51 mortgages 16–18, 45–51, 72, 97, 182–3, 195–219, 243–50, 326–7, 367–90, 488–9, 509–16 early-redemption charges MOU see memoranda of understanding MRMs see market risk multipliers multilateral netting, concepts 12 multinational banking xiv–xv, 41, 65–72, 179–219 see also global concepts xiv–xv, 41, 65–72, 179–219 definition 67–72 emerging markets 72 historical background 67–9 paradigm 69 reasons 68–72 regulations 68–72, 179–219 reputational reasons 71–2 multinational enterprises (MNEs), definition 67 Multinet 107 municipal banks, Russia 295–8 mutual firms, bank failures 397–8 mutual funds 3–4, 5, 41–2, 56–7, 58–9, 199, 322–3, 505, 512–14 see also unit trusts mutual-recognition principle, EU 270–86 narrow banking activities, concepts 157 narrow money, concepts 31–2 NASD see National Association of Securities Dealers [ 705 ] INDEX NASDAQ 58–9 National Association of Securities Dealers (NASD) 20–2, 23–4, 238, 250–9 National Bank Act 1863, USA 244–6 National Bank of India 67 National Mortgage Bank 380 national supervisory arrangements, harmonisation issues 215–16 National Westminster Bank (NWB) 11, 28–30, 511 Nations Bank 127, 519 negative externalities 174, 353–8 net economic value, definition 117 NetBank 94 Netherlands 13–18, 51–5, 74–85, 90–1, 180, 206, 282–4, 482, 490–2 netting practices 106–7 network money 86–97 New Capital Regulation Rules see Basel Accord New York Clearing House Association 12 New York Stock Exchange (NYSE) 20–2, 58, 59–64, 238 New Zealand 178, 291 Nigeria 366 Nikkei 85, 383–6, 437–40, 443 non-bank financial services 3, 5, 19, 25, 41–99, 454–60, 474 concepts 41–99, 461–70, 474 diversification xi–xii, xiv–xv, 4, 26–7, 37–8, 41–99, 520–1 universal banks 19, 25, 41 non-banks 97–8, 110, 139, 226, 240–2, 454–60 definition 97 growth issues 97–8, 226 non-interest income concepts 51–5, 85–6, 102 international comparisons 51–5 statistics 51–3 non-life insurance 16–18 non-parametric method, VaR 147–8, 152–3 Nordea 92–3 Northern Rock 236 Norway 74–85, 209, 237–8, 267–70, 395, 413, 449–55, 524 Norwest 519 note issuance facilities, concepts 138 NWB see National Westminster Bank NYSE see New York Stock Exchange OBS see off-balance sheet activities OECD 64, 68, 73–82, 91, 103, 173, 182–219, 291, 416–18, 517–19, 530, 533 off-balance sheet activities (OBS) xiv–xv, xviii, 4, 42, 45–54, 72, 89, 97, 102, 113, 124–5, 128, 182–219, 520 Office of Fair Trading (OFT) 11, 232–3 Office of Thrift Supervision (OTS), USA 247–8, 250, 254 offshore centres 64, 180 OFT see Office of Fair Trading oil 298, 381, 450–5, 463–4 OLS see ordinary least squares ombudsmen, UK 234–5 OPEC see Organisation of Petroleum Exporting Countries operational risk xv, 9–10, 12, 101, 104, 110–72, 194–219, 329 assessments 200–2, 208 Basel Accord 194–219 concepts xv, 9–10, 12, 101, 104, 110–13, 141, 169–71, 194–219 definition 110–11, 200–1 management 169–71, 194–219 types 110–12, 141, 208 opportunities xiv–xv, 85–98 opportunity costs, Libor 510–11 options xv, 42–4, 108, 117–18, 126–8, 129–33, 138, 149–51, 187–92, 218, 636–8 see also call .; put concepts xv, 42–4, 108, 117–18, 126–8, 129–33, 138, 149–51, 187–92, 218 definition 129 delta-neutral tactics 141 examples 131–3 statistics 42–4 terminology 129–33 types 129–30, 138 Orange County 140, 153 ordinary least squares (OLS) 500–6, 510–15 Organisation of Petroleum Exporting Countries (OPEC) 68, 381 [ 706 ] INDEX organisational structures xi–xii, xi–xiv, 1, 5–7, 15–39 see also structural issues command structures 5–7 concepts 5–7, 15–39 international comparisons 15–18 statistics 15–18 OTC see over the counter derivatives OTS see Office of Thrift Supervision out of the money options 129–33 outputs see also products concepts 1–5, 473–539 definition 473–7 economies of scale/scope xiii, xvii–xviii, 3, 26, 62–4, 238–40, 301, 473–539 efficiency issues xvii–xviii, 68, 300–1, 303–5, 411, 473–539 intermediation approach 476–7, 488–90 measures 473–7, 484–5 production approach 474–6 stock and flow measures 441–50, 474–6 value-added measures 474, 532–3, 537–8 outsourcing arrangements, payment systems 12–13 over the counter derivatives (OTC) concepts 42–4, 126–33 risks 44 statistics 42–4, 127–8 overdrafts 474 Overend Gurney xvii, 359–60, 408, 414 overview xi–xix, 1–39 P&A see purchase and acquisition Paine Webber 98 Pakistan xii, xvi–xvii, 323–4, 330–2, 338–9, 481 Palmer Rule 1832 459–61 panics 408–10, 412, 459–67 see also crises Panzer–Rosse statistic (PR), concepts 506–9 paperless credit transfers, statistics 13–15 parametric method, VaR 147–8 Paribas 391–2 pass through securities, concepts 47–51 Paycom 11–12 payment systems see also clearing systems concepts xiii–xiv, xvi, 9–39, 65–6, 86–97, 101–2, 106–7, 201–19, 474–7 future prospects 86–7, 87–97 intermediary services 9–10, 92–7, 474–7 international comparisons 9–15, 65 international payments systems 65–6 outsourcing arrangements 12–13 regulations 11–12 risk management 9–10, 101–2, 106–7, 201–19 statistics 9–15, 90–7 payments risk see settlements risk PayPal 87–90 PaySys 11 PBC see People’s Bank of China PC banking 92–7 PD see probability of default pegged exchange rates see also foreign exchange dangers 410–11, 415–36, 450–5 Penn Square Bank 363–5, 374, 616–31 pensions 41–2, 58, 274–7 People’s Bank of China (PBC) 305–17 perfect competition 509–12 performance issues see also efficiency concepts 51–5, 73–85, 96, 416–21, 444–6, 473–539 e-banking comparisons 96 emerging markets 300–1, 304–51, 416–21 international comparisons 51–5, 73–85, 300–1, 304–5, 416–21, 481 M&As 520, 525–9 SCP xvii–xviii, 494–509 share prices 83–5 statistics 51–5, 73–85, 96, 416–21, 527–9 Personal Investment Authority (PIA) 229–30 personal loans imperfect competition 513–15 non-banks 97 Peru 338–9 Pfandbrief, Germany 49–50 Philadelphia Board of Trade 42 Philippines 413, 416–36 physical trades, concepts 56 physical-capital risk [ 707 ] INDEX see also operational risk concepts 110–12 PIA see Personal Investment Authority pillar approach (risk assets ratio), Basel Accord 192–219 pillar approach (supervisors), Basel Accord 194–9, 202–10 pillar approach (market discipline), Basel Accord 194–5, 198, 203–10 PIN numbers 92 Piper Jaffray 21 plastic cards see also automated teller machines concepts 9–15, 91–2, 473–4 statistics 9–11, 13–15 Poland 74–85, 300, 302, 304–5 political risk concepts xv, xvii, xviii, 63, 101, 112, 332–47, 587–617 definition 112 emerging markets 332–47, 581–94 politics, M&As 537–8 ponzi finance, concepts 409 pooled assets see also asset transformations concepts 3–5 Porter, M 62 portfolio theory (PT), concepts 162–6 portfolios 3, 8, 37, 45–6, 53, 56–8, 148–55, 185–6 diversification 66–7, 185–6 emerging markets 332–47 loans 3, 8, 45–6, 53, 56–7 risk 57–8, 66–7, 148–55, 185–6 VaR 148–55, 456–60 Portugal 13–15, 51–5, 70–80, 277, 282–4, 482, 503–6, 535 Post Offices, Japan 1, 18, 435–7, 446–7 potential credit exposures 163–6 PR see Panzer–Rosse statistic pre-commitment approach, capital charges 210–11 prepayment risk, concept 118, 171 price makers, concepts 506–8 price risk see market risk price takers, concepts 506–8 Price Waterhouse 378 price-stability roles, central banks 30–6, 237–8, 283–5, 459–61 prices RE model 495–509 SCP 495–509 pricing models, generalised pricing models xvii–xviii, 8–515 pricing-the-loan method, credit risk 156–7 primary instruments, definition 55–6 principal-agent problems, concepts 6–7, 38, 225, 353–6, 531–3 privatisations xviii, 112, 184, 265, 292, 296–305, 320, 398, 612–13 probability of default (PD) Basel Accord 197–219 emerging markets 290–1 probability distributions, RAROC 144–6 probit approach 399–405 Procter and Gamble 139 product markets, definition 55–6 production approach, output measures 474–6 production function xiii, 475–6 productivity issues xvii–xviii, 473–539 see also performance concepts 473–7 definition 473–7 intermediation approach 476–7 TFP 474–6 products see also outputs concepts 1–39, 473–539 demand/supply curves 1–3, 4–5 Islamic banking 322–9 profit-maximisation 5–39, 103–6, 478, 519–20, 532–3 profitability see also returns concepts 5–39, 51–5, 73–85, 96, 103–4, 474–6, 495–509 e-banking comparisons 96 international comparisons 51–5, 73–85 statistics 51–5, 73–85, 96, 476, 496–509 supernormal profits 495–509 X-efficiencies xvii–xviii, 473, 477–94, 496, 500–6, 519–20, 525–7 ProfitCo 633–6 proprietary trading 19, 53–4, 72, 128, 139–42, 560–1, 635–7 [ 708 ] INDEX Prudential 95 prudential controls, regulations 32–6, 176–219, 228–42, 283–5 PT see portfolio theory ‘public good’ elements, regulations purchase and acquisition (P&A), concepts 352 put options see also options concepts 130–3, 384–6 QTL see qualified thrift lender test qualified thrift lender test (QTL) 370 qualitative assessments bank failures 390–9 credit risk 158–61 quantitative assessments, credit risk 158–61 quantitative models, failures xvii, 399–405 quotas 56–7, 68–70, 309–10, 314–15, 464 RAROC see risk adjusted return on capital rationing method, credit risk 156–7 RBI see Reserve Bank of India RE see relative efficiency model real estate services 3, 41–2 real time gross settlement (RTGS) 9–10, 11, 107 receivership considerations, bank failures 352–8 recessions 101, 124, 203–10, 380, 405, 452–4 reforms, regulations 101–2, 221–87, 293–351, 436–50, 459–71 regional banks, Germany 18 regulations xi–xii, xiv, xv–xvi, 3–4, 11–12, 18–20, 22–5, 34–8, 66, 88–9, 101–2, 168–9, 173–219, 221–87, 352–8, 394–8, 491–2 see also Basel background xv–xvi, 173–219, 221–87, 356, 394–5 Chinese walls 21, 28–30 costs 28, 238–42, 245–7 Cruickshank’s recommendations 11–12, 88, 174, 232–3 derivatives 139–42 EU xvi, 12, 32, 35, 62, 193, 205, 221, 235–7, 262–86, 385–6 failing banks 352–8, 394–5 financial conglomerates 27–8, 236, 274–5 firewalls 21, 28–30 incentive compatible regulations 210–13 innovations 168–9, 207–8, 290 international regulations xv–xvi, 173, 179–219 Islamic banking 329–32 Japan 221, 237–8, 242, 258–64, 286–7, 356, 394–7, 434–50, 459–67, 569–82 lawyers 233–5 MNBs 68–72, 179–219 monopoly situations 11, 68–9, 88–9, 101, 173–4, 178, 245–6, 293–4, 303–4, 478, 495–509 payment systems 11–12 pre-commitment approach 210–11 prudential controls 32–6, 176–219, 229–42, 283–5 ‘public good’ elements reasons 173–9, 352–8 reforms 101–2, 221–87, 293–351, 436–50, 453–5, 459–71 risk-based approaches 235–40 self-regulations 22, 44, 228–30, 237–9, 329–30 single regulators 237–42, 258 South East Asia 420–36, 459–67 ‘too big to fail’ doctrine 50–1, 174–5, 177, 365–7, 395–6 UK 29–30, 31–2, 34, 36, 218, 221–42, 292, 366–7, 376–86, 394–5, 459–62 USA xvi, 11–12, 18–28, 34–5, 50, 111, 139, 175, 180, 207, 211, 217–18, 221, 237–59, 292, 363–80, 394–8, 454–62, 520, 613–31 regulatory capital arbitrage, concepts 185–6 regulatory forbearance, concepts 27, 368–9, 394, 395–6, 420–1 relationship banking concepts xviii, 7–8, 139, 259–64, 280, 441–2, 571–82, 640–1 international comparisons [ 709 ] INDEX relative efficiency model (RE) see also X-efficiencies concepts xvii–xviii, 495–509 empirical tests 496–506 remote delivery channels 92–7 see also e- concepts 92–7 costs 92–7 repos, concepts 30–1, 59 reputations 71–2, 175, 230–1, 247, 367, 477, 541–64 rescheduling agreements, emerging markets 339–41, 344–7, 463–7 rescues xvii, xviii, 33, 50–1, 162, 174–5, 179–81, 237–8, 245–6, 352–90, 395–6, 424–36, 436–50, 453–5, 459–67, 609–11 research analysts, investment banks 20–1, 22–3, 237–9 Reserve Bank of India (RBI) 317–23 reserve ratios concepts 31, 33, 37, 45, 53, 105, 175–6, 182–219, 289, 309–10, 315, 317–18, 322, 353–4, 393, 574 Islamic banking 327–9 money supply 31, 33, 175–6 Resolution Trust Corporation (RTC) 370–2, 432–4, 440 restricted universal banks, concepts 25, 186, 222–42 retail banks see also commercial banks concepts 24, 56, 69, 94, 155–6, 201–19, 276–81, 509 return on assets (ROA) 103, 109–10, 142–5, 419–21, 444–5, 501–6, 527–8 return on equity (ROE) see also profitability concepts 54–5, 103, 142–5, 444–5, 501–6, 527–8 international comparisons 54–5 statistics 54–5, 501–6, 527–8 returns see also profitability concepts 54–5, 103–5, 142–6, 162–6, 419–21, 501–6, 521–32 M&As 521–9 RAROC xv, 103, 142–6, 163–6, 189, 198, 635–8 risk 104–5, 162–6 revenue see income Revised Basel Concordat (1983) 180–1, 395 rho 149–51 rip-offs 511–14 risk see also individual risk types Basel 169, 182–219, 393 concepts xv–xvi, 2–3, 9–10, 33, 38, 50, 101–72, 174–6, 182–219, 334–5, 477 definitions 103–13, 182–3 deposit insurance schemes 7, 38, 176–7, 181, 246–7, 253–7, 262–4, 272, 299–0, 321–2, 353, 355–8, 367–72, 398 emerging markets 329, 334–5 hedge funds xvii, 42–4, 66 interactions 112–13 internal models 187–9, 194–219 Islamic banking 329 M&As 533–4 returns 104–5, 162–6 systemic risk 33, 50–1, 101–3, 204–6, 236, 241–2, 254–6, 354–5, 424, 440–1, 449–55, 520, 533–4 types xv–xvi, 9–10, 33, 50, 58, 101–3, 103–13, 174–6, 329 underpricing issues 38 risk adjusted return on capital (RAROC) xv, 103, 142–6, 163–6, 189, 198, 635–9 risk assessments, intermediation costs 2–5 risk assets ratios 44–5, 192–219 risk management xi–xii, xiv–xvi, xviii, 9–10, 89–90, 101–72, 187–219, 320–1, 390–3, 454–60, 553–5, 635–9 ALM xiv–xv, 23, 41–2, 72, 101–72, 390–1 approaches 113–25, 142–72, 187–219, 553–5 Barclays Bank plc 169–71 concepts 9–10, 43–4, 101–72, 187–219, 390–3, 454–60, 635–9 credit risk 155–69, 169–71 [ 710 ] INDEX risk management (continued) definition 102 derivatives 43–4, 108–9, 125–42, 199–200, 635–6 duration analysis xv, 120–4, 191–2 future prospects 89–90 gap analysis 118–24 global banking 169–71 historical background 113, 142 incentive compatible regulations 210–13 innovations 168–9, 207–8 intermediary services 51, 101–2 key risks 103–13 market risk 142–55, 169–71, 581–94 OBS 102 operational risk 169–71, 194–219 payment systems 9–10, 101–2, 106–7, 201–19 RAROC xv, 103, 142–6, 163–6, 189, 198, 635–9 scenario analysis 154–5 stress testing 154–5, 203, 204–5 trading books 113–72 VaR xv, 101–3, 142, 146–55, 166–8, 187–92, 198, 211, 456–60, 553–5 risk premiums concepts 2–3, 103 intermediation services 2–3 statistics 103 risk to our objectives (RTO) 235–7 risk-based approaches to regulation, FSA 234–40 risk-free rate of return, concepts 103 Riskmetrics 142, 146–55, 187–9 ROA see return on assets ROE see return on equity rogue traders 208 Romania 305 Rothschilds 67 Royal Bank of Scotland 11, 97–8, 127, 222–42, 511 RTC see Resolution Trust Corporation RTGS see real time gross settlement RTGS systems 12 RTO see risk to our objectives Rusnak, John 111 Russia xvi, 67, 112, 209, 212, 292, 293–305, 317, 338–9, 413, 456, 465–6 accounting standards 299 background 293–305, 409–10, 413, 456, 465–6 bank failures 298–305, 337, 465–6 commercial banks 294–305 crises 409–10, 413, 456, 465–6 deposit insurance 299–0 efficiency issues 300–1, 303–5 financial repression 293–4, 303–4 foreign banks 296–9, 302–5 IASs 299 municipal banks 295–8 oil revenues 298 performance comparisons 300–1, 303–5 problems 300–4 reforms 293–305, 317–18 regulations 294–305 statistics 293–305, 338–9 structural issues 293–305, 317 S&Ls see savings and loans banks S&P500 83 Sainsbury 97, 226 Sakura Bank xviii, 439–41, 568–82 Salomon Smith Barney 20–2, 175, 249–50, 393 Salop–Stiglitz model 511–14 Sanwa Bank Group 439–40 Sarbanes–Oxley Act 2002, USA 217–18 Saudi Arabia 323–32 savings and loans banks (S&Ls) 46–7, 243–4, 253–4, 256, 367–80, 390–1, 394–6, 432–4 scale economies see economies scandals 20–1, 139–41 Scandinavia see also individual countries background 449–55 crises xvii, 102, 407, 412–13, 449–55 interest rates 449–55 reforms 453–5 regulations 267–70, 449–55 responses 453–5 structural issues 267–70, 449–55 Scandinaviska Enskilda Banken (SEB) 93–4 [ 711 ] INDEX scenario analysis, concepts 1545 Schneider, Jă rgen 78 u Schroder 156 scope economies see economies Scotland, free banking 178 SCP see structure–conduct–performance model search costs, intermediation 2–5, 37 SEC see Securities and Exchange Commission Second Banking Directive 1989, EU 271–2, 505–6 secondary banking crisis, UK 102, 161–2, 230, 380–1, 460 secondary instruments concepts 55–6, 58–9, 90 definition 55–6 section 20 subsidiaries see also bank holding companies concepts 24–5, 248–9 securities xiv, 17–18, 19, 20–1, 26–7, 41–2, 44–51, 72, 108, 214–18, 280–3, 325–9, 445–7 see also bonds; equities emerging markets 333–47 EU 280–3 issues 42, 44–51, 58 money supply 30 underwriting services 19–25, 72, 89, 248–9, 559–60 Securities and Exchange Commission (SEC) 20–2, 50, 207, 217–18, 247–59, 454–60 Securities and Futures Association (SFA) 228–30, 383 Securities and Investments Board (SIB) 27, 387 securitisation xiv–xv, 42–51, 53–4, 72, 158, 195–219 see also asset-backed securities; bonds; commercial paper Basel Accord 199 concepts xiv–xv, 42–51, 53–4, 72, 158, 195, 199 definition 44–5 statistics 44–51 security concerns, e-banking 95 seigniorage income, concepts 33–4 self-regulations 22, 44, 228–30, 237–9, 329–30 settlements risk, concepts xv, 9–15, 104, 106–7 SFA see Securities and Futures Association share prices, statistics 83–5 shareholder value-added, concepts 103–4, 532–3, 537–8 shareholder-owned banks, concepts shareholders see also equities bank failings 397–8 bank-failure resolutions strategies 358 building societies 224–6 institutional investors 23, 58, 72, 89–90 M&As 518–38 principal-agent problems 6–7, 38, 225, 353–6, 531–3 short-maturity products short-term financial instruments, definition 55–6 SIB see Securities and Investments Board SIM cards 93 Singapore 42, 71, 209, 382–6 Singapore Monetary Exchange 42 Single European Act 1986, EU 270–1, 283 SIS, Switzerland 12 SIT, France 12 Slovak Republic 300, 304–5 smaller and medium-sized enterprises (SMEs) 196, 198–9, 206–7, 291–2, 321–2, 534 smart cards 86, 93 SMEs see smaller and medium-sized enterprises Smile 94–5 social costs, failures xii, xvii, 32–3, 175–7, 353–406, 412–13 Society for World-wide Interbank Financial Telecommunications (SWIFT) 12 Sony Corporation 94 South East Asia see also individual countries contagion effects 423–36 crises xvii, 297–300, 337, 407, 409–10, 415–36, 454–5, 459–67 financial sector 418–36 foreign banks 422–36 GDP comparisons 416 [ 712 ] INDEX South East Asia (continued) interest rates 423–36 loans 417–36 policies 416–18, 424–36 regulations 420–39, 459–67 responses and developments 424–36 South Sea Company 414–15 sovereign risk concepts xv, xvii, 63, 104, 112, 128, 332–47, 581–94 definition 112, 332 emerging markets 332, 337–47, 581–94 Soviet bloc 287–9, 293–305, 450–2 see also individual countries Spain 13–15, 51–5, 67, 80, 102, 109, 266–9, 270, 282–4, 395, 413, 482, 488–94, 507–8 crises 413 M&As 266–9 reforms 264–8 regulations 266–9, 270 statistics 13–15, 51–5, 80, 266–9, 482, 488–94, 507–8 structural issues 259–270 special purpose vehicles (SPVs), concepts 45–6 specialist banks, concepts 41 specific market risk see unsystematic speculation 44, 128, 139–42, 212, 408–10 Spitzer, Elliot 20 SPVs see special purpose vehicles staff see employment issues Standard Chartered Bank 67, 222–42 standard deviation, risk definition 103–4, 143–5 Standard and Poor’s 162, 207 standardised approach, Basel Accord 193, 195–219 standing orders 9–10 stochastic frontier analysis, concepts 480–2, 526–7 stock and flow measures 441–50, 474–6 stock markets see also equities accounting standards 58 banking performance 83–5 concepts 57–64, 227–30, 537 future prospects 89–90 key locations 59–64 mergers and alliances 58–9 trading costs 59 trends 58–9 stockbroker services 1, 5, 19, 22, 41–2, 56, 93, 227–30, 236–7 store value cards 86–97 strategic alliances, concepts 517–19 stress testing, concepts 154–5, 203, 204–5 strike prices, options 129–33 structural issues xi–xii, xi–xiv, 1, 5–7, 15–39, 221–87, 288–351, 425–50, 466–7, 477, 495–538, 557–64, 632–6 see also organizational concepts 1, 5–7, 15–39, 221–87, 477, 517–38 emerging markets 288–351, 415–36, 459–67 EU 221, 262–86 international comparisons 15–18, 221–87 Japan 221, 258–64, 285–7, 351, 434–50, 459–71, 568–82 M&As 517–38 output measures 477 statistics 15–18, 495–509 types 19–26 UK 15–18, 221–42, 292, 459–62, 526–7 USA 15–18, 221, 242–59, 292, 351, 460–2 structure–conduct–performance hypothesis (SCP) concepts xvii–xviii, 494–509 empirical tests 496–506 students, learning experiences xxi subordinated debt, concepts 211–12 subsidiaries, holding companies xiv, 24–5, 247–59 substitute products, competition 505–6, 512–15 Sudan 323–32 Sumitomo Mitsui Banking Corporation xviii, 1, 387, 439–41, 568–82 sunk costs 506–8 supermarkets 97, 226 supernormal profits, RE model 495–509 [ 713 ] INDEX supervisory pillar, Basel Accord 194–9, 202–10 Svenska Handelsbanken 535 swaps xv, xviii, 42–4, 68–9, 89–90, 104–5, 108, 111, 126–8, 133–42, 182–3, 187–92, 345–6, 640–3 concepts xv, xviii, 42–4, 68–9, 89–90, 104–5, 126–8, 133–8, 182–3, 187–92, 345–6, 640–3 counterparty risk 104 definition 133 examples 133–8 statistics 42–4 types 133–8 swaptions, concepts 138 Sweden 18, 67, 74–85, 92–5, 178, 180, 213, 237, 268–70, 276, 282–5, 412–13, 449–55, 482, 502–6, 535 SWIFT see Society for World-wide Interbank Financial Telecommunications Switch 11 see also debit cards Switzerland 12, 13–15, 18, 25, 29–30, 51–5, 64, 68, 74–85, 107, 395, 524 Sword Blade Company 414–15 Sydney Futures Exchange 42 syndicated loans, concepts 4–5, 24, 41 synergies xiii, 484–5, 517, 564–8 see also mergers and acquisitions systematic market risk see also market risk definition 107–8, 185–6 systemic risk concepts 33, 50–1, 101–3, 174–6, 204–6, 236, 241–2, 254–6, 354–5, 424, 440–1, 449–55, 520, 533–4 definition 175 M&As 520, 533–4 TARGET see Trans-European Automated Real Time Gross Settlement Express Transfer System tariffs 56–7, 68–70 taxation 91–2, 112–13, 274–5, 299, 512–15 EU 274–8 intermediation services offshore centres 64 TBTF see ‘too big to fail’ technical progress xiv, xvii–xviii, 10–11, 56, 70, 72–3, 85–98, 475–6, 491–4, 520 see also innovations; Internet concepts xvii–xviii, 85–98, 475–6, 491–4, 520 costs 492–4, 520 e-banking 92–7 e-cash xiv, 86–97 iTV 95–6 statistics 492–4 term deposits, concepts 4–5 Tesco 97, 226 tesobonos xviii, 586–94 TFP see total factor productivity Thailand xvii, 209, 288–9, 291, 338–9, 413, 415–36, 465–7 background 415–36, 465–7 crisis responses 424–5, 427–8, 431–6, 465–6 theta 149–51 thick labour markets, clustering factors 62–3 Third World debt crisis (1982) 128, 581–94 see also emerging markets third-party sales, information 3, 95–6 threats xiv–xv, 85–98 three-pillar approach, Basel Accord 192–219 tier capital 15–18, 182–219, 222, 227–8, 443–5, 574–5 tier capital 182–219, 443–5, 574–5 tier capital 187–92 time decay see also theta options 130–2, 149–51 time horizons, RAROC 144–6 Tokyo stock markets 59–64 ‘too big to fail’ (TBTF) 50–1, 174–5, 177, 365–7, 395–6 top players, banks 15–18, 206, 222–59, 439–40, 511–15 total factor productivity (TFP), concepts 474–6 total return swaps, concepts 135, 137–8 trade attempts, knowledge 68–71 TradeWeb 90 trading books, risk management 113–72 trading methods, concepts 56 [ 714 ] INDEX Trans-European Automated Real Time Gross Settlement Express Transfer System (TARGET) 10, 12 concepts 10, 12 statistics 12 transaction costs 3, 9–10, 58, 90, 92–7 see also intermediation transactional banking xviii, 8, 474–539 concepts xviii, international comparisons Islamic banking 325–9 transparency issues 175, 178, 218, 282–4, 330 Treasury, UK 36, 231–3, 237, 241, 285–6, 460–2 Treasury bills, UK 30 Treasury bonds, USA 44, 90 Treaty of Rome 1957 270–1 true and fair view, accounting standards 217–18 Tunisia 338–41 Turkey 66–7, 74–85, 209, 300, 323–32, 338–9, 465, 481 UAE 323–32 UBS see Union Bank of Switzerland UBS Warburg 21 UCITS see Undertakings for the Collective Investment of Transferable Securities Directive UFJ Holding 439–40 UK xiii–xiv, xv–xvi, 1–18, 25–32, 51–85, 90–8, 108–9, 127, 161–2, 174, 180, 186, 213–18, 221–42, 249–50, 271–86, 292, 300, 359, 366–7, 380–7, 394–5, 482 see also Bank of England; London ABSs 49–51 accounting standards 217–18 bank failures 102, 106, 108–9, 161–2, 230, 242, 359, 366–7, 380–6, 394–5, 461–3 Banking Acts 227–8, 230–5, 367 ‘Big Bang’ 226–30 ‘big four’ banks 11, 88, 222–42 branch closures 13 building societies 1, 16–18, 222–42 Companies Acts 29–30, 366 credit ratings 206 crises xvii, 102, 161–2, 230, 359–60, 380–1, 408, 410–11, 460–1, 461–3 e-banking 94–5, 98 ERM 108–9, 282–4, 410–11 EU 108–9, 271–86, 410–11 financial conglomerates 26–30, 236 financial repression 292 Financial Services Act 1986 22, 227–30 Financial Services and Markets Act 2000 34, 224–42 free banking 178 FSA 22–3, 27, 34, 186, 215, 224, 226, 231–42, 460–2 international comparisons 13–18, 73–85, 482, 485–94 key financial centres 59–64, 221–42 LSE 22–3, 59–64, 227–30 MNBs 67–72 Monetary Policy Committee 31–2, 34, 36, 231–2, 282–4 ombudsmen 234–5 Overend Gurney xvii, 359–60, 408, 414 payment systems 9–15, 65, 91, 94–5 profitability 51–5, 73–85, 482, 485–8, 490–2 rankings 15–18, 482, 490–4, 502–8 reforms 221–42, 459–62 regulations 29–30, 31–2, 34, 36, 218, 221–42, 292, 366–7, 376–86, 394–5, 459–62 rescue policies 352 ROE trends 54–5 secondary banking crisis 102, 161–2, 230, 380–1, 460 share prices 83–5 statistics 9–10, 13–18, 26, 51–5, 60–4, 73–85, 90–1, 94–5, 221–42, 300, 394–5, 482, 485–8, 490–4, 502–6, 507–15, 526–7 structural issues 15–18, 221–42, 292, 459–62, 526–7 transactional banking Ukraine 304–5, 338–9, 481–2 Undertakings for the Collective Investment of Transferable Securities Directive 1985 (UCITS), EU 274–6 [ 715 ] INDEX underwriting services, concepts 19–25, 72, 89, 249, 559–60 unexpected losses, concepts 143–6, 162–6 Union Bank of Switzerland (UBS) 29–30, 218, 222, 249–50, 323–4, 519, 536 unit trusts 3–4, 5, 41–2, 56–7, 58–9, 199, 274–6, 322–3 see also mutual funds universal banks concepts xiv, 1, 19, 25, 41, 104, 186, 263–7, 270, 307, 602 restricted universal banks 25, 186, 222–42 unsystematic market risk see also market risk definition 107–8 Uruguay 338–9, 360, 465 US GAAP 218, 368–9 USA xiii–xvi, 1, 5, 8–28, 44–85, 90–1, 94–7, 102, 105, 107, 152–8, 162, 180, 184, 193, 204–18, 221, 242–59, 274–5, 292, 300, 351–3, 359–80, 393–8, 408, 432–4, 454–92, 520, 613–31 see also Federal Reserve Bank ABSs 44–51 accounting standards 58, 217–18 bank failures 102, 105, 204, 244–6, 252–5, 353, 359–62, 363–5, 367–80, 393–8, 432–4, 461–3, 616–31 Bank Holding Company Act 1956 24–5, 248–9 Banking Act 1933 19–20, 246–51, 461 Basel Accord 193, 205–7, 208 BHCs xiv, 24–5, 247–59 ‘big six’ banks 242–59 branch regulations 250–3 CAMEL scores 245–7, 256–7 commercial/investment bank separation 246–51 Cr´ dit Lyonnais 613–15 e crises 367–80, 393–8, 408, 432–4, 454–60, 461–3 e-banking 94–5, 97 FDIC 243–59, 363–5, 367–80, 393–4, 398, 618–31 Federal Reserve xvi, 11–12, 24–5, 27–8, 34–5, 111, 139, 175, 180, 211, 238, 245–59, 292, 361–2, 365, 460–2, 475, 485 FHCs 249–51 financial repression 292 FIRREA 253–4, 370–2, 498 foreign banks 256–9 Glass Steagall Act 18, 19–20, 24–5, 246–51, 461, 520, 636 Gramm Leach Bliley Act 25, 242–3, 248–58 international comparisons 13–18, 73–85, 481 key financial centres 59–64, 221, 242–59 M&As 251–3, 517–38 MNBs 67–72 payment systems 11–15, 65, 91, 94–5, 107 profitability 51–5, 73–85, 476, 484–6, 496–8, 490–506 rankings 15–18 reforms 244–59, 460–2 regulations xvi, 11–12, 18–28, 34–5, 50, 111, 139, 175, 180, 207, 211, 217–18, 221, 237–59, 292, 363–80, 394–8, 454–62, 520, 613–31 rescue policies 352 ROE trends 54–5, 527–8 S&Ls 46–7, 242–4, 253–6, 367–80, 390–1, 394–400, 432–4 Sarbanes–Oxley Act 2002 217–18 SEC 20–2, 50, 207, 217–18, 247–59 share prices 83–5 statistics 11–12, 13–18, 48–55, 60–4, 73–85, 90–1, 94–5, 242–59, 300, 367–80, 393–5, 475, 476, 481–2, 484–6, 490–506, 519–38 structural issues 15–18, 221, 243–59, 292, 351, 460–2 transactional banking value at risk (VaR) see also credit .; market concepts xv, 101–3, 142, 146–55, 166–8, 187–92, 198, 203, 211, 456–60, 553–5 credit VaR 166–8 critique 151–4, 189–92, 203, 456–60 definition 146 examples 146–55, 187–9, 456–60, 553–5 [ 716 ] INDEX value at risk (VaR) (continued) ‘Greeks’ 149–51 problems 151–4, 189–92, 203, 456–60 value-added measures, outputs 474, 532–3, 537–8 vanilla interest-rate swaps, concepts 133–4 VaR see value at risk variance–covariance approaches, VaR 147–8, 153–4, 188–92 variation margins, derivatives 127 vega 149–51 Venezuela 338–41 venture capital 195–6, 278 verification costs, intermediation 2–5, 37 vertical disallowances, concepts 191–2 violation, concepts 152–3 Virgin 97, 226, 560 Visa 11, 86 Visa Cash 86 VisaDebit 11 see also debit cards volatility see also vega RAROC 142–6 risk definition 103–4 Wachovia 242–50 Warburgs 222 warehousing steps, securitisation 45–6 warrants 108 Wells Fargo & Co 243–50, 519 Westinghouse 98 wholesale banking xiv–xv, 24, 41, 69–70, 102, 179–81, 205, 222–42, 509 see also commercial banks concepts xiv–xv, 24, 41, 69–70, 179–81, 509 MNBs 69–70, 179 withholding taxes 59 Woolwich 95 World Bank 89–90, 213–14, 304, 308, 334, 424–36, 530 World Trade Organisation (WTO) 289, 311–17, 421–2 WorldCom 156 Wriston, Walter 28, 101–2 writers, options 132–3 WTO see World Trade Organisation X-efficiencies xvii–xviii, 473, 477–94, 496, 500–6, 519–20, 525–7 see also relative efficiency model concepts 473, 477–94, 496, 500–6, 519–20, 525–7 DEA 478–9, 526–7 M&As 531–27 statistics 478, 481–2, 490–2, 500–6 stochastic frontier analysis 480–2, 526–7 Yamaichi Securities 445–7 Yemen 323–32 yield curves 117–18, 134–5 zaitech 572–4 .. .Modern Banking Shelagh Heffernan Professor of Banking and Finance, Cass Business School, City University, London Modern Banking Shelagh Heffernan Professor of Banking and Finance, Cass Business. .. GRH and GJH, in their Diamond Anniversary Year ABOUT THE AUTHOR Professor Shelagh Heffernan is currently Professor of Banking and Finance at Cass Business School, City University, London and. .. policy and pass through (funded by an ESRC grant), and M&As in banking Professor Heffernan is an Associate Member of the Higher Education Academy and has received two Distinguished Teaching and