Index ABN Amro, 51–52 Bahrain, 18 Africa, 17, 116 Bank for International Settlements (BIS), Agent-principal argument, xxiii 32–34 Agricultural commodities, 117–118 Bank-issued infl ation-linked notes, 109–110 AIG, macroprudential regulation and, 53 Bank of America, 46–47 Algeria, 19 Bank of England, 56, 106 Alpha, as myth, 82 Banks: ARCH/GARCH models, 78–80 concentration of derivatives in, 28–29 Argentina, 7 deleveraging of, xxv Asia: initiatives to address systemic risk in, central banks, 22 30–36 currency crisis of 1997–1998, 5, 24, 38 moral hazard and, 37–42 gross savings versus net lending in Barclays Bank, 48–49, 120 percentage of gross domestic product Barings bank, 27 of, 17 Basel Committee on Banking and Asset-backed commercial paper vehicles Supervision (BCBS): (ABCPs), in shadow banking system, limit on leverage ratios, 162 xxiv proposals for revamping rules, 173–175 Asset-liability committee (ALCO), 124 Basel II, 45 policies, 134–137 Basel III, 123 reporting, 136, 137–142 Bear Stearns: reporting, proposed, 174–175 fi nancial accelerator and, 68 Asset-liability management (ALM), systemic risk and, 52, 53–54 123–157 http://www.pbookshop.comBelgium: ALCO policy, 134–137 gross domestic product of, 51 ALCO reporting, 137–142 sovereign debt and, 100 basic concepts, 123–134 Bernanke, Ben, 14–15, 43 internal funding rate policy, 151–157 Best practices, internal funding rate policy liquidity risk management metrics, and, 154 145–151 COPYRIGHTEDBlackstone, MATERIAL 64 liquidity risk management principles, Blundell-Wignall, Adrian, 153 142–145 BNP Paribus: mismanaged, 86 effi cient market hypothesis and, 80–81 Assets: leverage and total assets, 46–47 internal funding rate policy and, 155–156 Boards of Directors: rotation of, 95–97 current regulations and bank strategy, strategy and review of, 161 160 Atkinson, Paul, 153 risk behavior and remuneration, 66 Australia, 68, 108 structure of, 167 191 192 INDEX Bonds, infl ation risks and, 110–112 debt as percentage of gross domestic Bonuses. See Remuneration, corporate product of, 96 governance and excess foreign exchange reserves, xx Bradford & Bingley, 151 gross savings versus net lending in Brady, Nicholas, xx percentage of gross domestic product Brazil: of, 17 cost of fi scal crisis as percent of gross recommended solutions for global domestic product of, 9 imbalances, 16, 20–21 currency risk and, 7, 115–116 sovereign debt and, 105 debt as percentage of gross domestic Citigroup, xxiii, 46–47, 52, 53 product of, 96 Clinton administration, 4 Bretton Woods agreement, collapse of, 4 Collateralized debt obligations (CDOs), xix, Brunnemeier, Markus K., 25 xxii, 14 Bubbles: remuneration and calculation of profi ts, cyclical nature of, xix–xxi, xxvi, 38 62 overview of historical, 89 in shadow banking system, xxiv Buffett, Warren, 27 synthetic, 68 Bulgaria, 9 Colombia, cost of fi scal crisis as percent of Business cycles, 88–89 GDP, 8 Business models, 158–167 Commerzbank, 48–49 capital structure and, 163–165 Commodities: leverage ratios and, 161–163 ETFs and, 120–121 need for change in, 158–159 investment guidelines and, 116–118 risk identifi cation and, 165–167 sovereign debt and, 100 strategy and, 159–161 Compensation. See Remuneration, corporate governance and Canada: Concentration report, as liquidity risk currency risk and, 114 management metric, 146, 149–150 debt as percentage of gross domestic Consolidation, risk of too-big-to-fail and, product of, 96, 98 45–52 infl ation-indexed bonds of, 108 Contango effect, 120 leverage and, 68 Contingent-capital instruments, xxv Capital cost theorem, 85 Corporate governance, in new model, 167 Capital instruments, developing new, 45 Cost of funds, internal funding rate policy Capital management: and, 152–154 in bear market, 67–68http://www.pbookshop.comCountercyclical capital management, 67, special reversed convertible bonds and, 163–165, 170–173 69–75 Credit Agricole Group, leverage and total Capital structure, business model and, assets, 46–47 163–165 Credit default swaps (CDSs), 23, 31–32 Carry trade, 86 effi cient market hypothesis and, 79–80 Case-Shiller U.S. Home Price Index, 36 Credit rating agencies, 78 Cash fl ow matching, 131 Credit Suisse Group: Central banks, economic theories and, 89–92 hedge fund Index performance, 83 Central clearing party (CCP), proposed, leverage and total assets, 48–49 31–34 Credit Suisse/Tremont Hedge Fund index, Chile, 9 xiii–xiv China: Crises. See also Bubbles commodities and, 116 cyclical nature of, xix–xxi, xxvi currency risk and, 115 need for cycle-proof regulation, xxiii–xxv Index 193 Cumulative liquidity model, as liquidity risk Equities, infl ation risks and, 110–112 management metric, 146, 148 Euro, 105, 115 Currency risk, 104, 114, 115–116, 120 Europe, gross savings versus net lending in Current-account defi cit in U.S., 9, 11–15 percentage of GDP, 17 Current account surpluses, need to reduce, European Central Bank (ECB), 106 16, 20–21 Exchange rates (artifi cially low), role in Cycle-proof regulation, need for, xxiii–xxv fi nancial crisis of 2007–2009, 15–16 Czechoslovakia, 9 Exchange-traded funds (ETFs), 112, 118–121 Debt (public), as percentage of GDP, advantages and disadvantages of, 7–8, 9 119–120 Deleveraging, xxv, 96–97, 106 Delphi, 112 Fama, Eugene, 76, 77 Demographics, sovereign debt and, Fannie Mae, 39–40, 105 101–103 Federal Deposit Insurance Corporation Derivatives, xxi–xxii (FDIC), 43 growth in use of, 22–24 Federal Reserve: solutions for improvement, 30–36 economic theories and, 90 systemic risk and, 23–30 infl ation and, 106 Deutsche Bank, leverage and total assets, interest rate conundrum and, 11–15 48–49, 68 as proposed regulator of banks, 30 Devaluations, 104, 115 Fiat money, 105 Dexia, leverage and total assets, 50–51 Finance, paradox of, xxi Diversifi cation theory, xiii–xv, 76, 85–88 Finance companies, Thai crisis and, 6–7 Dynamic provisioning, 68–69 Financial accelerator, 68 Financial crash of 2007–2009: Economic theories, 76–92 capital buffers and reverse convertibles, capital cost theorem, 85 67–75 diversifi cation and, xiii–xv, 76, 85–88 capital safeguards and, 75 effi cient market hypothesis, 76–84 derivatives and systemic risk, 22–36 fi nancial instability hypothesis, 88–89 economic theories and, 76–92 lessons for central banks, 89–92 emerging market crises and, 5–8, 9, 10 Ecuador, 9 exchange rates and, 15–16 Effi cient market hypothesis (EMH), 76–84 globalization and, 3–4 anomalies, 80–83 recommendations and solutions, 16–21 free markets and, 76–77http://www.pbookshop.comremuneration and corporate governance, rationality and, 79–80 60–66 in theory and practice, 78–79 savings glut and low-yield environment, volatility and, 84 8–9, 11–15 Effi cient portfolio theory, xiii–xv too-big-to-fail and moral hazard, 37–59 Egypt, 19 Financial instability hypothesis (FIH), of El-Erian, Mohamed, 104 Minsky, 88–89 Emerging economies: Financial markets, benefi ts of, xix currency risk and, 115–116 Financial Services Authority (FSA), 54, 56, globalization and, 4 123, 142 gross savings versus net lending in liquid asset buffers and, 175–177 percentage of gross domestic product new models of liquidity risk management, of, 17 168–175 role in fi nancial crisis of 2007–2009, 5–8, remuneration and, 65 9, 10 SRC and, 70 194 INDEX Finland, 9 Gregory, Joe, 64 Flannery, Mark, 69–70, 71 Gross, Bill, 97 Foreign exchange reserves (excess), xx Gross domestic product (GDP): Fortis Bank, 48–49, 51–52 debt as percentage of, 96 401(k) plans, 4 economic environment and ratio of debt France: to, 103–105 bond ratings, 113 per country, 51 debt as percentage of gross domestic public debt as percentage of, 7–8, 9 product of, 96, 98 gross domestic product of, 51 HBOS, leverage and total assets, 48–49 infl ation-indexed bonds of, 108 Hedge funds: sovereign debt and, 105 growth of industry, 22 Freddie Mac, 39–40, 105 negative 2008 performance, 87 Friedman, Milton, 13, 105 in shadow banking system, xxiv Friedman, Thomas, 116 Housing market, property derivative Fuld, Dick, xxiii, 64 proposed, 35–36 Funding risk, defi ned, 151 HSBC, xv, 46–47, 142 Hungary, 9 Geithner, Timothy, 101 Hutchinson, Michael, 5 Gelband, Mike, 64, 92 Germany: Iceland, 45 bond ratings, 113 India: currency risk, 114 currency risk and, 115–116 debt as percentage of gross domestic debt as percentage of gross domestic product of, 96, 98 product of, 96 gross domestic product of, 51 Indonesia, 9 gross savings versus net lending in Infl ation, 105–114 percentage of gross domestic product effects of, 105–107 of, 17 equities versus bonds and, 110–112 infl ation-indexed bonds of, 108 ETFs and, 120 sovereign debt and, 105 investment solutions, 106–110 Global bailout, cost of, 39–42 sovereign debt and, 100 Globalization, xxi Infl ation-indexed Treasuries (TIPS), 107 hedge funds and, 22 ING Bank, 48–49, 51 role in fi nancial crisis of 2007–2009, Insurance industry, 21 3–4 http://www.pbookshop.comInter-entity lending report, as liquidity risk Global warming, 117–118 management metric, 146, 150 Gold, 116–117 Interest rate conundrum, 11–15, 22, 34 Goldman Sachs, 41–42, 46–47 Interest rate derivatives, 23, 31 Greece: Interest-rate gap, 126, 137–138 credit default swaps and, 114 Interest-rate risk, ALM practice and, infl ation-indexed bonds of, 108 124–127 sovereign debt and, 105 Interest rate swaps, network of, 26–27 Greenspan, Alan: Internal demand, need to stimulate, 20 interest rate conundrum and, 11–13, 22, Internal funding rate policy, 151–157 34 assets/liabilities and, 155–156 interest rates and, 77 best practices and, 154 moral hazard and, 38 cost of funds and, 152–154 transparency and, 43 framework, 151–152 Greenspan Put, 38 liquidity premium calculation, 156–157 Index 195 scope, 154–155 Laissez-faire capitalism.