商业银行管理全套配套课件英文PPT教师手册习题习题答案 Chap007.ppt 47页

ChapterSevenRiskManagementforChangingInterestRates:Asset-LiabilityManagementandDurationTechniques KeyTopicsAsset,Liability,andFundsManagementMarketRatesandInterestRateRiskTheGoalsofInterestRateHedgingInterest-SensitiveGapManagementDurationGapManagementLimitationsofInterestRateRiskManagementTechniques IntroductionEvenasafinancialinstitutiontakesonrisk,itmustprotectthevalueofitsnetworthfromerosion,whichcouldresultinultimatefailureFinancial-servicemanagershavelearnedtolookattheirassetandliabilityportfoliosasanintegratedwholeTheymustconsiderhowtheirinstitution’swholeportfoliocontributestothefirm’sgoalsofadequateprofitabilityandacceptableriskKnownasasset-liabilitymanagement(ALM)Canprotectagainstbusinesscyclesandseasonalpressures Asset-LiabilityManagementStrategiesAssetManagementStrategyControloverassets,nocontroloverliabilitiesLiabilityManagementStrategyControloverliabilitiesbychangingratesandothertermsFundsManagementStrategyWorkswithbothstrategies EXHIBIT7–1Asset-LiabilityManagementinBankingandFinancialServices InterestRateRisk:OneoftheGreatestManagementChallengesChanginginterestratesimpactboththebalancesheetandthestatementofincomeandexpensesoffinancialfirmsPriceRiskWheninterestratesrise,themarketvalueofthebondorassetfallsReinvestmentRiskWheninterestratesfall,thecouponpaymentsonthebondarereinvestedatlowerrates InterestRateRisk:OneoftheGreatestManagementChallenges(continued)ForcesDeterminingInterestRatesLoanableFundsTheoryTheMeasurementofInterestRatesYTMBankDiscountComponentsofInterestRates EXHIBIT7–2DeterminationoftheRateofInterestintheFinancialMarketplaceWheretheDemandandSupplyofLoanableFunds(Credit)InteracttoSetthePriceofCredit InterestRateRisk:OneoftheGreatestManagementChallenges(continued)InterestratesarethepriceofcreditDemandedbylendersascompensationfortheuseofborrowedfundsExpressedinpercentagepointsandbasispoints(1/100ofapercentagepoint)YieldtoMaturity(YTM)Thediscountratethatequalizesthecurrentmarketvalueofaloanorsecuritywiththeexpectedstreamoffutureincomepaymentsthattheloanorsecuritywillgenerate InterestRateRisk:OneoftheGreatestManagementChallenges(continued)HowtoCalculatetheYieldtoMaturity InterestRateRisk:OneoftheGreatestManagementChallenges(continued)Anotherpopularinterestratemeasureisthebankdiscountrate(DR)Oftenquotedonshort-termloansandmoneymarketsecurities(suchasTreasurybills) InterestRateRisk:OneoftheGreatestManagementChallenges(continued)TheDRmeasureignorestheeffectofcompoundingandisbasedona360-dayyearUnliketheYTMmeasure,whichassumesa365-dayyearandassumesthatinterestincomeiscompoundedatthecalculatedYTMTheDRmeasureusesthefacevalueofafinancialinstrumenttocalculateitsyieldorrateofreturnMakescalculationseasierbutistheoreticallyincorrectThepurchasepriceofafinancialinstrumentisamuchbetterbasetouseincalculatingtheinstrument’struerateofreturn InterestRateRisk:OneoftheGreatestManagementChallenges(continued)ToconvertaDRtotheequivalentyieldtomaturity,wecanusetheformula InterestRateRisk:OneoftheGreatestManagementChallenges(continued)MarketinterestratesareafunctionofRisk-freerealrateofinterestVariousriskpremiumsDefaultRiskInflationRiskLiquidityRiskCallRiskMaturityRisk InterestRateRisk:OneoftheGreatestManagementChallenges(continued)Marketinterestrateformula InterestRateRisk:OneoftheGreatestManagementChallenges(continued)YieldCurvesGraphicalpictureoftherelationshipbetweenyieldsandmaturitiesofsecuritiesGenerallycreatedwithtreasurysecuritiestokeepdefaultriskconstantShapesoftheyieldcurveUpward–long-termratesarehigherthanshort-termratesDownward–short-termratesarehigherthanlong-termratesHorizontal–short-termandlong-termratesareequal EXHIBIT7–3YieldCurvesforU.S.TreasurySecuritiesin2009and2010 InterestRateRisk:OneoftheGreatestManagementChallenges(continued)Typicallymanagersoffinancialinstitutionsthatfocusonlendingfaresomewhatbetterwithanupward-slopingyieldcurveMostlendinginstitutionsexperienceapositivematuritygapbetweentheaveragematurityoftheirassetsandtheaveragematurityoftheirliabilitiesIftheyieldcurveisupwardsloping,thenrevenuesfromlonger-termassetswilloutstripexpensesfromshorter-termliabilitiesTheresultwillnormallybeapositivenetinterestmargin(interestrevenuesgreaterthaninterestexpenses)Incontrast,arelativelyflat(horizontal)ornegativelyslopedyieldcurveoftengeneratesasmallorevennegativenetinterestmargin EXHIBIT7–4TheSpreadbetweenShort-TermandLong-TermInterestRatesonTreasurySecurities(October2010) OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMarginInordertoprotectprofitsagainstadverseinterestratechanges,managementseekstoholdfixedthefinancialfirm’snetinterestmargin(NIM) OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)Amongthemostpopularinterestratehedgingstrategiesinusetodayisinterest-sensitivegapmanagementGapmanagementtechniquesrequiremanagementtoperformananalysisofthematuritiesandrepricingopportunitiesassociatedwithinterest-bearingassetsandwithinterest-bearingliabilitiesIfmanagementfeelsitsinstitutionisexcessivelyexposedtointerestraterisk,itwilltrytomatchascloselyaspossiblethevolumeofassetsthatcanberepricedasinterestrateschangewiththevolumeofliabilitieswhoseratescanalsobeadjustedwithmarketconditionsduringthesametimeperiod OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)ExamplesofRepriceable(Interest-Sensitive)Assetsand(Interest-Sensitive)LiabilitiesandNonrepriceableAssetsandLiabilities OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)Afinancialfirmcanhedgeitselfagainstinterestratechanges–nomatterwhichwayratesmove–bymakingsureforeachtimeperiodthatThegapistheportionofthebalancesheetaffectedbyinterestraterisk OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)Ifinterest-sensitiveassetsexceedthevolumeofinterest-sensitiveliabilitiessubjecttorepricing,thefinancialfirmissaidtohaveapositivegapandtobeassetsensitiveIntheoppositesituation,supposeaninterest-sensitivebank’sliabilitiesarelargerthanitsinterest-sensitiveassets OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)Thereareseveralwaystomeasuretheinterest-sensitivegap(ISGAP)Onemethod–DollarISGAPIfinterest-sensitiveassets(ISA)are$150millionandinterest-sensitiveliabilities(ISL)are$200millionTheDollarISGAP=ISA–ISL=$150million–$200million=-$50millionAninstitutionwhoseDollarISGAPispositiveisassetsensitive,whileanegativeDollarISGAPdescribesaliability-sensitivecondition OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)RelativeISGAPratioARelativeISGAPgreaterthanzeromeanstheinstitutionisassetsensitive,whileanegativeRelativeISGAPdescribesaliability-sensitivefinancialfirm OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)InterestSensitivityRatio(ISR)AnISRoflessthan1tellsuswearelookingataliability-sensitiveinstitution,whileanISRgreaterthanunitypointstoanasset-sensitiveinstitutionOnlyifinterest-sensitiveassetsandliabilitiesareequalisafinancialinstitutionrelativelyinsulatedfrominterestraterisk OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)GappingmethodsusedtodayvarygreatlyincomplexityandformAllmethods,however,requirefinancialmanagerstomakesomeimportantdecisions:Managementmustchoosethetimeperiodduringwhichthenetinterestmargin(NIM)istobemanagedtoachievesomedesiredvalueandthelengthofsubperiods(“maturitybuckets”)intowhichtheplanningperiodistobedividedManagementmustchooseatargetlevelforthenetinterestmarginIfmanagementwishestoincreasetheNIM,itmusteitherdevelopacorrectinterestrateforecastorfindwaystoreallocateearningassetsandliabilitiestoincreasethespreadbetweeninterestrevenuesandinterestexpensesManagementmustdeterminethevolumeofinterest-sensitiveassetsandinterest-sensitiveliabilitiesitwantsthefinancialfirmtohold OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)Manyinstitutionsusecomputer-basedtechniquesinwhichtheirassetsandliabilitiesareclassifiedasdueorrepriceabletoday,duringthecomingweek,inthenext30days,andsoon OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)Thenetinterestmarginisinfluencedbymultiplefactors:ChangesinthelevelofinterestratesChangesinthespreadbetweenassetyieldsandliabilitycostsChangesinthevolumeofinterest-bearing(earning)assetsafinancialinstitutionholdsasitexpandsorshrinkstheoverallscaleofitsactivitiesChangesinthevolumeofinterest-bearingliabilitiesthatareusedtofundearningassetsasafinancialinstitutiongrowsorshrinksinsizeChangesinthemixofassetsandliabilitiesthatmanagementdrawsuponasitshiftsbetweenfloatingandfixed-rateassetsandliabilities,betweenshorterandlongermaturityassetsandliabilities,andbetweenassetsbearinghigherversuslowerexpectedyields OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)Wecalculateafirm’snetinterestincometoseehowitwillchangeifinterestratesriseNetinterestincomecanbederivedfromthefollowingformula OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)AusefuloverallmeasureofinterestrateriskexposureisthecumulativegapThetotaldifferenceindollarsbetweenthoseassetsandliabilitiesthatcanberepricedoveradesignatedperiodoftimeGivenanyspecificchangeinmarketinterestrates,wecancalculateapproximatelyhownetinterestincomewillbeaffectedbyaninterestratechange OneoftheGoalsofInterestRateHedging:ProtecttheNetInterestMargin(continued)ProblemswithInterest-SensitiveGAPManagementInterestpaidonliabilitiestendtomovefasterthaninterestratesearnedonassetsTheinterestrateattachedtobankassetsandliabilitiesdonotmoveatthesamespeedasmarketinterestratesThepointatwhichsomeassetsandliabilitiesarerepricedisnoteasytoidentifyTheinterest-sensitivegapdoesnotconsidertheimpactofchanginginterestratesonequitypositions TABLE7–2EliminatinganInterest-SensitiveGap TheConceptofDurationasaRisk-ManagementToolDurationisavalue-weightedandtime-weightedmeasureofmaturitythatconsidersthetimingofallcashinflowsfromearningassetsandallcashoutflowsassociatedwithliabilitiesMeasurestheaveragematurityofapromisedstreamoffuturecashpaymentsor TheConceptofDurationasaRisk-ManagementTool(continued)Thenetworth(NW)ofanybusinessorhouseholdisequaltothevalueofitsassetslessthevalueofitsliabilitiesAsmarketinterestrateschange,thevalueofbothafinancialinstitution’sassetsanditsliabilitieswillchange,resultinginachangeinitsnetworth TheConceptofDurationasaRisk-ManagementTool(continued)PortfoliotheoryteachesusthatAriseinmarketratesofinterestwillcausethemarketvalue(price)ofbothfixed-rateassetsandliabilitiestodeclineThelongerthematurityofafinancialfirm’sassetsandliabilities,themoretheywilltendtodeclineinmarketvalue(price)whenmarketinterestratesriseByequatingassetandliabilitydurations,managementcanbalancetheaveragematurityofexpectedcashinflowsfromassetswiththeaveragematurityofexpectedcashoutflowsassociatedwithliabilitiesThus,durationanalysiscanbeusedtostabilize,orimmunize,themarketvalueofafinancialinstitution’snetworth TheConceptofDurationasaRisk-ManagementTool(continued)Theimportantfeatureofdurationfromarisk-managementpointofviewisthatitmeasuresthesensitivityofthemarketvalueoffinancialinstrumentstochangesininterestratesThepercentagechangeinthemarketpriceofanassetoraliabilityisequaltoitsdurationtimestherelativechangeininterestratesattachedtothatparticularassetorliability TheConceptofDurationasaRisk-ManagementTool(continued)Therelationshipbetweenanasset’schangeinpriceanditschangeinyieldorinterestrateiscapturedbyakeyterminfinancethatisrelatedtoduration–convexityConvexityreferstothepresenceofanonlinearrelationshipbetweenchangesinanasset’spriceandchangesinmarketinterestratesItisanumberdesignedtoaidportfoliomanagersinmeasuringandcontrollingthemarketriskinaportfolioofassetsAnassetorportfoliobearingbothalowdurationandlowconvexitynormallydisplaysrelativelysmallmarketriskConvexityincreaseswiththedurationofanassetIttellsusthattherateofchangeinanyinterest-bearingasset’sprice(marketvalue)foragivenchangeininterestratesvariesaccordingtotheprevailinglevelofinterestrates UsingDurationtoHedgeagainstInterestRateRiskAfinancial-serviceproviderinterestedinfullyhedgingagainstinterestratefluctuationswantstochooseassetsandliabilitiessuchthatsothatthedurationgapisasclosetozeroaspossible UsingDurationtoHedgeagainstInterestRateRisk(continued)Becausethedollarvolumeofassetsusuallyexceedsthedollarvolumeofliabilities,afinancialinstitutionseekingtominimizetheeffectsofinterestratefluctuationswouldneedtoadjustforleverageEquation(7-21)statesthatthevalueofliabilitiesmustchangebyslightlymorethanthevalueofassetstoeliminateafinancialfirm’soverallinterest-rateriskexposureThelargertheleverage-adjusteddurationgap,themoresensitivewillbethenetworth(equitycapital)ofafinancialinstitutiontoachangeininterestrates UsingDurationtoHedgeagainstInterestRateRisk(continued)ExpandingthebalancesheetrelationshipofEquation(7–17) UsingDurationtoHedgeagainstInterestRateRisk(continued)Supposeabankholdsthefollowingportfolioofassetsandtheircorrespondingdurations UsingDurationtoHedgeagainstInterestRateRisk(continued)Weightingeachassetdurationbyitsassociateddollarvolume,wecancalculatethedurationoftheassetportfolioas: UsingDurationtoHedgeagainstInterestRateRisk(continued)Theimpactofchangingmarketinterestratesonnetworthcanbedescribedas: TheLimitationsofDurationGapManagementFindingassetsandliabilitiesofthesamedurationcanbedifficultSomeassetsandliabilitiesmayhavepatternsofcashflowsthatarenotwelldefinedCustomerprepaymentsmaydistorttheexpectedcashflowsindurationCustomerdefaultsmaydistorttheexpectedcashflowsindurationConvexitycancauseproblems QuickQuizWhatdothefollowingtermsmean:assetmanagement?liabilitymanagement?fundsmanagement?Whatistheyieldcurve,andwhyisitimportanttoknowaboutitsshapeorslope?Canyouexplaintheconceptofgapmanagement?Whenisafinancialfirmassetsensitive?Liabilitysensitive?Explaintheconceptofweightedinterest-sensitivegap.Howcanthisconceptaidmanagementinmeasuringafinancialinstitution’srealinterest-sensitivegapriskexposure?Whatisduration?Howisafinancialinstitution’sdurationgapdetermined?Whataretheadvantagesofusingdurationasopposedtointerest-sensitivegapanalysis?