Better Banking

Why did the financial crisis happen? Why did no one see it coming? And how did our banks lose so much of our money? What's being done to sort out the banking industry? And will it work? These are the questions that industry experts Adrian Docherty and Franck Viort cover in Better Banking: Understanding and Addressing the Failures in Risk Management, Governance and Regulation. They give a clear and thorough run-through of some of the key concepts and developments in banking, to enable the reader to understand better this vital yet perilous industry. Without excessive detail or jargon, they explain the most important issues in risk management, regulation and governance and build a comprehensive description of how failings in these areas resulted in the current financial crisis. In order to make the diagnosis clear, the authors illustrate their descriptions with a series of informative case studies. The book revolves around a critique of the current regulatory developments, which the authors feel will be ineffective in fixing the structural flaws in banking. Crucially, and as the title of the book suggests, they set out their own series of proposals to contribute to the development of a better, safer and more effective banking industry. Docherty and Viort's book fills an important gap in the literature on banking and its role in the current financial crisis. It is at once a history, a primer, a critique and a manifesto. It does not take sides but works through a constructive diagnosis towards ideas that could lead to major improvements in the quality and stability of the financial world. Better Banking: Understanding and Addressing the Failures in Risk Management, Governance and Regulation is a technical yet accessible book that seeks to engage interested readers of all kinds -- students, professionals, bankers and regulators but also politicians and the broader audience of citizens outside the banking industry, who are keen to inform themselves and understand what needs to be done to avoid a repeat of this crisis.

Why did the financial crisis happen? Why did no one see it coming? And how did our banks lose so much of our money? What's being done to sort out the banking industry? And will it work?These are the questions that industry experts Adrian Docherty and Franck Viort cover in Better Banking: Understanding and Addressing the Failures in Risk Management, Governance and Regulation. They give a clear and thorough run-through of some of the key concepts and developments in banking, to enable the reader to understand better this vital yet perilous industry. Without excessive detail or jargon, they explain the most important issues in risk management, regulation and governance and build a comprehensive description of how failings in these areas resulted in the current financial crisis. In order to make the diagnosis clear, the authors illustrate their descriptions with a series of informative case studies. The book revolves around a critique of the current regulatory developments, which the authors feel will be ineffective in fixing the structural flaws in banking. Crucially, and as the title of the book suggests, they set out their own series of proposals to contribute to the development of a better, safer and more effective banking industry.Docherty and Viort's book fills an important gap in the literature on banking and its role in the current financial crisis. It is at once a history, a primer, a critique and a manifesto. It does not take sides but works through a constructive diagnosis towards ideas that could lead to major improvements in the quality and stability of the financial world.Better Banking: Understanding and Addressing the Failures in Risk Management, Governance and Regulation is a technical yet accessible book that seeks to engage interested readers of all kinds -- students, professionals, bankers and regulators but also politicians and the broader audience of citizens outside the banking industry, who are keen to inform themselves and understand what needs to be done to avoid a repeat of this crisis.

Acknowledgements xi1 Introduction 11.1 Overview and Objectives 11.2 Quick Start Guide to Banking Concepts and Regulation 42 The Global Financial Crisis 72.1 From Deregulation to dotcom Crash 72.2 The Seeds of a Crisis 92.3 "Why Didn't Anyone See This Coming?"142.4 The Beginnings of a Crisis 172.5 The Crisis Intensifies 202.6 Meltdown: The Lehman Bankruptcy 212.7 Massive Intervention Internationally 232.8 Sovereign Crises 292.9 Aftershocks and Skeletons in the Cupboard 322.10 Who is to Blame? 343 Methodologies and Foundations 373.1 How do Banks Make or Lose Money? 373.2 What's a Bank Worth? Key Issues in Accounting forBanks 413.3 What is Risk? 473.4 What is an RWA? 553.5 What is Capital? 613.6 What are Liquidity and Funding? 683.7 What is a Derivative? 843.8 Mark-to-Market and Procyclicality 903.9 Role of Regulation, Supervision and Support 963.10 Ratings Agencies and Credit Ratings 1013.11 Analysts, Investors and Financial Communication 1094 Regulation of the Banking Industry 1134.1 The Relevance of Bank Regulation and Supervision 1134.2 Regulation and Supervision of the Banking Industry Prior to"Basel I" 1134.3 The Basel Capital Accord aka "Basel I" 1174.4 Basel II 1224.5 Basel III 1414.6 Resolution Regimes 1634.7 Other Current Regulatory Workstreams 1715 Case Studies 1755.1 RBS 1765.2 Dexia 1795.3 HBOS 1845.4 HSBC 1895.5 Bear Stearns 1925.6 Merrill Lynch 1965.7 AIG 2005.8 JP Morgan 2075.9 Barclays 2135.10 UBS 2175.11 Northern Rock 2215.12 Bankia-BFA 2235.13 Australia 2285.14 Canada 2335.15 Summary of "Lessons Learned" from the CaseStudies 2366 Objectives and Design Principles 2396.1 Free Market versus State Capitalism 2406.2 Are There Alternatives to Banks? 2426.3 Benefi ts and Limitations of Finance 2506.4 How Much Risk Can We Tolerate? 2516.5 The Role of Regulation and Supervision 2546.6 The Role of "the Market" 2566.7 Conclusions: Proposed Objectives and Design Criteria 2587 A Blueprint for "Basel IV" 2597.1 Risk Management 2617.2 The Guardian Angel 2697.3 Human Capital 2757.4 Governance 2877.5 Capital 2917.6 Liquidity and Funding 2997.7 The "Pillar 2" Mindset 3037.8 Glasnost: Market Discipline and "Pillar 3"3117.9 Industry Structure 3138 Challenges 3278.1 Industry Entrenchment 3278.2 Human Behaviour 3298.3 Performance Management for Good Risk Management 3328.4 Timing 3338.5 A Positive Challenge: Technological and Social Progress3339 What Next? A Call to Arms 335Glossary & Jargon Lookup 339Disclaimer Regarding Excerpts from S&P Materials 349Index 351