Show Less
You do not have access to this content

Bank Funding, Liquidity, and Capital Adequacy

A Law and Finance Approach

José Gabilondo

Focusing primarily on the banking system in the United States, this book offers an innovative framework that integrates a depository bank’s liquidity and its capital adequacy into a unified notion of funding that helps to explain how the 2007–2008 crisis unfolded, why central banks succeeded in resolving the crisis, and how the conceptual legacy of the crisis and its resolution led to lasting changes in bank funding regulation, including new objective requirements for bank liquidity. To provide a comparative context, the book also examines the funding models of non-bank intermediaries like dealer banks and insurers.
Show Summary Details
This content is available to you

Index

José Gabilondo

AIG
contingent liabilities 74, 79, 119, 129, 141
credit default swaps 67
crisis and rescue 17, 74, 8182
allowance for loan and lease losses 9394, 173
asset management
Blackrock 61
money market funds 60
bank
bank holding company 10
defined 1, 611
structure 69
see also case study; contingencies; Federal Reserve; intermediation; liability structure; liquidity; loss absorption; money position; net interest margin; regulatory capital
Bank of America 11
Basel Committee on Banking Supervision
crisis and rescue 21, 8182
liquidity regulation 11415, 123
regulatory capital 8790
Bear Stearns
crisis and rescue 17, 7576, 79
secured financing 119, 121, 141
business models
and crisis 7173
comparative approach 46
post-crisis regulation 2021, 142
case study
asset-liability mismatch 144147
balance sheets 148, 151, 152
commercial paper 151
contingencies 14647
credit revolver 145146
deferred tax asset 146
deposits 14445
deteriorating creditworthiness 151153
federal funds 144
money position 149
net interest margin 148
securitization 14546
trading book 145
collateral
AIG 16, 74, 121
carrying cost 12
collateral markets 68, 110, 140
crisis and rescue 1718, 20, 23, 70, 83, 118119
dealer banks 4651
funds transfer pricing 137
government funds 42
intermediation of 29
liquidity coverage ratio 120, 125128, 132133
money position 3435, 7576
securitization 66
treasury function 3839, 143
velocity 20
wholesale funds 41
contingencies
case study 146147
contingent capital 105
duty to deliver 29
funding implications 13, 16, 19, 129130
intermediation 29
money position 3236
off-balance sheet 105
stealth liability 70, 7478, 117, 119, 140
warehouse credit facilities 6869
dealer bank
and crisis 6869
broker-dealer 47
business lines 4748
defined 47
financing 4851
net capital rule 51
debt instruments
bonds 43
deposits 3940
government sources 42
wholesale funds 4042
defined-benefit plans/pensions
asset-liability structure 5657
liability-driven investment 57
Deutsche Bank
funds transfer pricing 138
regulator 11
Dodd-Frank Act
Financial Stability Oversight Council 111
funding rules 22
liquidity rules 120
nonbank intermediaries 110112
regulatory capital 99100, 105
European Banking Authority 11, 108
European Central Bank 11, 72
Federal Reserve
as regulator 1011, 111113
capital studies 79, 103
cheap money 16
crisis and rescue 1719
lending 42, 150
liquidity 1920, 22
reintermediation 142
stresstesting 108
financial conglomerates
funds transfer pricing 13738
structure 811
financial crisis
asset class versus funding explanation 1418
bank failures 77
conceptual legacy 1822
contingent liabilities 7475
dealer credit market 6669
funding spirals 6670, 7577
impact on regulatory capital 99100
impact on regulatory liquidity 116120
intermediation 7778
overleveraging 74
rescues 8183
secondary markets 6667
securitization 70
subprime assets 6768
funding
contingencies 3133
crisis and rescue 1622
defined 1518
integrated notion 2122
funds transfer pricing
Goldman Sachs 11, 60, 72, 83, 142
HSBC 11
insurers
asset-liability structure 5354
business lines 5232
financial mismatch 55
interest rates 4345
intermediation
financial mismatch 2829
funding contingencies 3133
money position see below
post-crisis 140
JP Morgan 11, 17, 60, 72, 8283, 142
legal capital 34
leveraged
finance 15
loans 71
liability structure
contractual obligations 140
coverage 23
Dodd-Frank Act 22
financial intermediaries 19
Hyman Minsky 12
interest rates 4344
liquidity coverage ratio 134135
relevance 30
theoretical status 12
liquidity
conceptual shift 11617
contingency funding plan 117
funding liquidity 11718
funds transfer pricing 13639
hot money 43, 78, 115, 119, 122, 127, 153
liquidity coverage ratio
adoption 12324
calculation 121, 12930
classifying assets 12426
hypothetical crisis 12022
incentives 13334
inflows 12627
liability structure 13435
run off rates 12729
market liquidity 11718
qualitative supervisory assessments 11516
regulatory liquidity 22, 24, 35, 42, 114139
value chain 1617, 69
loss absorption
economic criteria 9597
equity instruments 91
net worth 13, 92
regulatory capital 9396, 99
tangible common equity 100101
Tier 1 and 2 capital 9798, 101102
money position
banks 3942
crisis and rescue 7578, 122
defined 3337
funding liquidity 118
liquidity coverage ratio 119122
money market 119
salience 141
securitization 60
treasury function 37
wholesale lenders 120
net interest margin
construction of 2930, 35, 39
defined 2
impact of liquidity coverage ratio 142
interest rates 4345
net stable funding ratio 44, 107, 141
regulatory capital
Basel Accords 22, 73, 80, 88108
community banks 88
deductions from capital 93
evaluating loss-bearing capacity of capital instruments 9598
function 9093
interests served 25, 9091
internal models 89
market risk 89
minimum thresholds 99
notions of risk 89
post-crisis
counter-cyclical capital buffer 108109
financial leverage ratio 104105
higher minimum thresholds 101102
hybrid instruments 105106
lock-in rules 103
non-bank intermediaries 11013
redefinition of capital 101102
reregulation 100, 107
stress-testing 106108
prudential accounting adjustments 90
regulatory arbitrage 7273
regulatory balance sheet 9096
risk-weighting of assets 9395
Securities and Exchange Commission
broker-dealers 6, 11, 21, 47
net capital rule 49, 51
securitization
and financial crisis 67, 7071
asset classes 1516, 66
dealer credit market 6670
impact on bank business model 32, 7475, 7779, 129, 145–160
links to originator 60
pricing pathologies 7071
special purpose vehicles 5860
tranche structure 5859
treasury 38
Senior Supervisors Group reports 1
funding dynamics 819, 118
securitization 7071
systemically important
banks 109110
global financial institutions 11213
nonbanks 110112
Tarullo, Daniel 19
total loss absorbing capital 11213
treasury function
defined 3739
relevance 14243
UBS 11