Research Solutions To The Financial Problems Of Depository Institutions

Overview

This book provides a practical analysis of the typical investments and funding sources of depository institutions. With a particular emphasis on mortgage-related investments (ARMs, CMOs, IOs, and POs), state-of-the-art valuation models are included that incorporate both call and default risk. Equity funding issues are also analyzed in detail. In addition, the author summarizes the history of the depository institution crisis, discusses the future outlook, and suggests a creative solution to the deposit insurance ...

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Overview

This book provides a practical analysis of the typical investments and funding sources of depository institutions. With a particular emphasis on mortgage-related investments (ARMs, CMOs, IOs, and POs), state-of-the-art valuation models are included that incorporate both call and default risk. Equity funding issues are also analyzed in detail. In addition, the author summarizes the history of the depository institution crisis, discusses the future outlook, and suggests a creative solution to the deposit insurance crisis that permits government deposit insurance without risk or cost to taxpayers.

After proposing a system of private deposit insurance backed by minimal market-to-market collateral requirements, the author focuses on micro topics. In particular, the book includes a comprehensive evaluation of default risk data, precise equations for valuing complex mortgage securities, a theoretical model for making hedging and capital adequacy decisions (including an econometric model for estimating the return on the market portfolio and market risk premiums), and a practical discounted cash flow valuation model for analyzing depository institution stock (that incorporates financial statement items and footnotes as well as mortgage prepayments and the term structure of interest rates). The work represents an excellent handbook for financial institution executives, consultants, regulators, investors, and students.

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Product Details

  • ISBN-13: 9780899307053
  • Publisher: ABC-CLIO, Incorporated
  • Publication date: 8/24/1992
  • Pages: 172
  • Product dimensions: 6.14 (w) x 9.21 (h) x 0.44 (d)

Meet the Author

J. AUSTIN MURPHY is an Associate Professor of Finance at Oakland University.

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Table of Contents

Illustrations
Preface
1 Introduction to the Balance Sheet Problems of Depository Institutions 1
Appendix 1A: An Empirical Analysis of Thrift Futures Market Activity 8
2 An Innovative Solution to the Deposit Insurance Crisis: FIDOE 23
Appendix 2A: Estimating the Risk and Return Attributes of American Puts 32
3 Analysis of the Default Risk of Assets Held by Depository Institutions 41
4 Analysis of the Interest Rate Risk of Complex Assets Held by Depository Institutions 55
5 Hedging Depository Institution Balance Sheet Risk 79
Appendix 5A: The Valuation of Interest Rate Swaps 87
Appendix 5B: Econometrically Valid CAPM Tests 95
Appendix 5C: An Empirical Test of a Disequilibrium Model of Futures Prices 103
Appendix 5D: The Relative Costs of Alternative Cash-Reserve Policies 113
6 An Analysis of the Capacity of Depository Institutions to Raise Equity Capital 117
7 Conclusion 147
Additional Readings 151
Index 153
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