New banking and investment business models to navigate the
post-financial crisis environment
The financial crisis of 2007-2008 has discredited business
models in the banking and fund management industries. In The
Future of Finance, Moorad Choudhry and Gino Landuyt argue that
banks must realign their business models, implying a lower
return-on-equity; diversifying their funding sources; and
increasing liquidity reserves. On the investment side, the authors
discuss how diversification did not reduce risk, but rather
amplified it, and failed to stabilize returns. The authors conclude
that the clear lesson from the crisis is to know one’s risk. A
lesson that is best served by concentrating on assets and sectors
that you understand.
* Examines the weaknesses in the business models of many
institutions, as well as the theoretical foundation for
professionals in the field of finance
* Identifies the shortcomings of Modern Portfolio Theory
* Addresses how investment managers can find new strategies for
creating ‚alpha‘ and why they need to re-vamp their fee
structures
Filled with in-depth insights and practical advice, The
Future of Finance will provide bankers and investment managers
with a guide to realigning their businesses in order to prosper in
the post-crisis financial markets.
Inhaltsverzeichnis
Foreword xi
Preface xiii
Introduction xix
Market Instability xx
Derivatives and Mathematical Modeling xxi
Senior Management and Staying in the Game xxiii
Macroprudential Financial Regulation and Cycle-Proof Regulation xxiii
The Way Forward xxv
Conclusion xxvi
Part One A Review of the Financial Crash 1
Chapter 1 Globalization, Emerging Markets, and the Savings Glut 3
Globalization 3
A Series of Emerging-Market Crises 5
Low-Yield Environment Due to New Players in the Financial Markets 8
Artificially Low Exchange Rates 15
Recommendations and Solutions for Global Imbalances 16
Chapter 2 The Rise of Derivatives and Systemic Risk 22
Systemic Risk 23
Derivative Market Systemic Risk: Solutions for Improvement 30
Chapter 3 The Too-Big-to-Fail Bank, Moral Hazard, and Macroprudential Regulation 37
Banks and Moral Hazard 37
Addressing Too-Big-to-Fail: Mitigating Moral Hazard Risk 42
Macroprudential Regulation: Regulating Bank Systemic Risk 53
Conclusion 58
Chapter 4 Corporate Governance and Remuneration in the Banking Industry 60
Bonuses and a Moral Dilemma 60
A Distorted Remuneration Model 61
Unsuitable Personal Behavior 64
Conclusion 65
Chapter 5 Bank Capital Safeguards: Additional Capital Buffers and Reverse Convertibles 67
Capital Issues in a Bear Market 67
Looking for New Capital Instruments 69
Chapter 6 Economic Theories under Attack 76
A Belief in Free and Self-Adjusting Markets 76
Modigliani and Miller 85
Markowitz and Diversification Tested 85
Minsky Once Again 88
Lessons to Be Learned by Central Banks 89
Conclusion 92
Part Two New Models for Banking and Investment 93
Chapter 7 Long-Term Sustainable Investment Guidelines 95
The Investment Landscape after the Crisis 95
Government Debt and Demographics 97
A New Economic Environment 103
The Inflation Dragon 105
Currencies and a Changing Geopolitical Landscape 115
Exchange-Traded Funds: A Flexible Asset Class 118
Conclusion 121
Chapter 8 Bank Asset-Liability and Liquidity Risk Management 123
Basic Concepts of Bank Asset-Liability Management 123
Asset and Liability Management: The ALCO 134
ALCO Reporting 137
Principles of Banking Liquidity Risk Management 142
Measuring Bank Liquidity Risk: Key Metrics 145
Internal Funding Rate Policy 151
Conclusion 157
Chapter 9 A Sustainable Bank Business Model: Capital, Liquidity, and Leverage 158
The New Bank Business Model 158
Corporate Governance 167
Liquidity Risk Management 168
The Liquid Asset Buffer 175
Conclusion 177
Notes 179
References 187
About the Authors 189
Index 191
Über den Autor
MOORAD CHOUDHRY has over twenty-one years experience in investment banking and was latterly head of treasury at Europe Arab Bank. He was previously head of treasury at KBC Financial Products and vice president in structured finance services at JPMorgan Chase Bank. Dr. Choudhry is Visiting Professor at the Department of Economics, London Metropolitan University, and Senior Research Fellow at the ICMA Centre, University of Reading. He is a Fellow of the ifs-School of Finance and a Fellow of the Chartered Institute for Securities and Investment. He is on the Editorial Board of the Journal of Structured Finance and the Editorial Advisory Board of American Securitization.
GINO LANDUYTis Head of Sales at Conduit Capital in London. Prior to that, he was head of institutional structured sales at ING Bank in Brussels, and worked with KBC Bank N.V. in their Brussels, Frankfurt, New York, and London offices. Landuyt has an MA in applied economic sciences from the State University of Antwerp and an MBA from the Catholic University of Antwerp.
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