Banking Risk Management in a Globalizing Economy

Banking is now an active asset-liability risk management enterprise, attributable in large part to the globalization of commerce. The authors of this descriptive yet practical, applications-oriented book examine the sources and management of traditional and nontraditional banking risks, then the conventional on-balance sheet and the modern off-balance sheet risk management methods. Unlike other more general risk management books, however, they focus closely on the use of financial derivatives--instruments to control the core risks attributable to credit and to fluctuations in interest and foreign exchange rates. The authors cover all this and more, giving experienced and novice practitioners both an easily accessed way to understand and cope with the banking risks they are already familiar with, and the new risks just emerging. The book will also be useful as a supplemental text in college-level courses on money and banking and on the operation of financial markets in general.

The authors begin by explaining how banking has moved from a routine financial process to an active and impersonal process of risk management, from relationship banking to community banking. Even banks that have stayed with traditional lending are now assuming greater risks. The authors then focus on the details of measuring, monitoring, and controlling risks. They define risk and the different philosophical approaches to its management, then continue with a discussion of operational matters, such as risk identification and classification. They discuss the evolution of banking risk management and the banking environment of the 20th Century, with special attention to the differences in methods used during the time of fragmented and highly regulated economies and those used in the highly integrated global economies of the last quarter century. The book describes in useful detail the major financial derivative products: forwards, options, caps, collars, and swaps, and their uses as risk management devices and tools for speculation, both. The book also treats on-balance sheet risk management methods, such as credit options and credit swaps. Interest rate risk is also covered in detail, and so too the management of foreign currency risk.

PANOS ANGELOPOULOS is a Credit Analyst at Alpha Bank and a consultant to the Ministry of Education on the development of courses in banking and stock markets, both in Greece. He also teaches in colleges and continuing education programs and holds an M.A. in economics from the City University of New York. Previously he worked in the Risk Management Department and the Credit Policy Department of Ionian Bank, also in Greece.

PANOS MOURDOUKOUTAS is Professor of Economics, Long Island University, New York. He has traveled extensively throughout Europe and Asia as an adviser to government and business organizations, with extended stays at Nagoya University, Japan. Among his many publications are four books from Quorum: The Global Corporation and Collective Entrepreneurship in a Globalizing Economy (both 1999), and with (Yuko Arayama) The Rise and Fall of Abacus Banking in Japan and China (2000) and China Against Herself (1999).