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Book Review (4 of 4): Financial Institutions Management – A Risk Management Approach — Industry Trends and Risk
The book describes a financial services industry that has undergone dramatic structural shifts over the last 90 years, moving from a full-service model to a highly segmented one, and back toward a consolidated “universal” banking model. This evolution is marked by significant trends that have fundamentally altered the risk profiles of modern financial institutions (FIs).…
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Book Review (3 of 4): Financial Institutions Management – A Risk Management Approach — Regulation and Oversight
The book explains that regulation is necessary to protect the economy from the negative externalities that arise when a financial institution fails. These external costs can include the destruction of household savings or the restriction of credit to businesses. According to the book, there are six major types of regulation: safety and soundness, monetary policy,…
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Book Review (2 of 4): Financial Institutions Management – A Risk Management Approach — Types of Depository Institutions
In the context of financial institutions management, the book defines depository institutions (DIs) by their unique role in obtaining a significant portion of their funding from customer deposits, which are then used to fund various types of loans. This creates a “joint-product” nature where DIs offer products on both sides of their balance sheets—loans as…
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Book Review (1 of 4): Financial Institutions Management – A Risk Management Approach — Why Financial Institutions Are Special
Why Financial Institutions are Special Financial institutions (FIs) are considered special because they provide essential functions that benefit the economy by channeling funds from those with a surplus to those with a shortage. In a world without FIs, the flow of funds between these groups would be significantly lower due to high monitoring costs, liquidity…