Risk Management and Value Creation in Financial Institutions

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9780471254768: Risk Management and Value Creation in Financial Institutions

An analysis of the links between risk management and value creation
Risk Management and Value Creation in Financial Institutions explores a variety of methods that can be utilized to create economic value at financial institutions. This invaluable resource shows how banks can use risk management to create value for shareholders, addresses the advantages of risk-adjusted return on capital (RAROC) measures, and develops the foundations for a model to identify comparative advantages that emerge as a result of risk-management decisions. It is the only book needed for banking executives interested in the relationship between risk management and value creation.

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From the Inside Flap:

Increased competition among banks as well as pressure from shareholders for superior returns have forced financial institutions to focus on managing their value. But the idea of viewing risk management activities in banks from a risk-return perspective-and hence in the context of value creation-has not been analyzed on an industry or bank level until very recently.

Risk Management and Value Creation in Financial Institutions offers a close look at this subject by exploring both the theory and practice of corporate risk management in financial institutions. Author Gerhard Schroeck lays the foundations for developing a model that would allow banks to identify comparative advantages, examining where they should concentrate their risk management activities and how they should structure them. The book's valuable insights provide financial intermediaries with a detailed analysis of the link between risk management and value creation, and will help them build economic value.

Schroeck starts with an investi-gation of this link by defining and discussing value maximization and risk management within a banking context. He also addresses whether there is empirical evidence that may connect the two. Schroeck then explores different financial theories on risk management and value creation, and shows you how to create a framework that encompasses both of them.

Risk Management and Value Creation in Financial Institutions moves forward to outline the fundamentals for effective risk measures and discusses how currently applied measures can help you consistently determine-in the context of a valuation framework-the various types of risk a bank faces. This comprehensive guide also investigates whether risk-adjusted performance measures, such as the widely known Risk-Adjusted Return on Capital (RAROC), are an adequate capital budgeting tool to measure economic performance of banks as well as identify value creation in them. Rounding out this comprehensive look at risk management and value creation in financial institutions, Schroeck shows you how to use the results gained from his analysis to make critical decisions on the relationship between risk management and value creation-from whether a bank should restructure to whether it should concentrate on its competitive advantages or divest, and much more.

Given the central role of risk in banks, understanding how to manage risk is crucial. Risk Management and Value Creation in Financial Institutions provides this understanding and gives you the knowledge to create economic value from prudent risk management.

From the Back Cover:

"This instructive and insightful book offers one of the first comprehensive discussions of the relationship between risk management and value creation in banks. Gerhard Schroeck provides a solid theoretical foundation for discussing the problem and clearly reduces the existing discrepancy between financial theory and the state-of-the-art risk management approaches currently used in the banking industry. His book is a superb reference and extremely valuable both for practitioners as well as academics."
-Dr. Manfred Steiner
Professor of Finance and Banking, University of Augsburg, Germany

Through an in-depth look at both the theory and practice of corporate risk management in financial institutions, Risk Management and Value Creation in Financial Institutions offers a variety of methods that can be utilized to create economic value at almost any financial institution. For the first time, this book bridges the gap between theory and practice in this field by:
* Deriving circumstances under which risk management at the corporate level can create value in banks
* Laying the theoretical foundations for a normative approach to risk management in banks
* Evaluating the practical heuristics of RAROC and economic capital as they are currently practiced
* Developing more detailed instructions on how to conduct risk management and how to measure value creation in banks

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Schroeck, Gerhard
Published by Wiley (2002)
ISBN 10: 0471254762 ISBN 13: 9780471254768
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Schroeck, Gerhard
Published by Wiley (2002)
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Schroeck, Gerhard
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Book Description Wiley, 2002. Book Condition: New. Brand New, Unread Copy in Perfect Condition. A+ Customer Service! Summary: Figures. Tables. Symbols. Abbreviations. INTRODUCTION. FOUNDATIONS FOR DETERMINING THE LINK BETWEEN RISK MANAGEMENT AND VALUE CREATION IN BANKS. Value Maximization in Banks. Value Maximization as the Firm's Objective. Valuation Framework for Banks. Problems with the Valuation Framework for Banks. Empirical Conundrum. Other Stakeholders' Interests in Banks. Risk Management in Banks. Definition of Risk. Definition of Risk Management. Role and Importance of Risk and Its Management in Banks. Link between Risk Management and Value Creation in Banks. Goals of Risk Management in Banks. Choice of the Goal Variable. Choice of the Stakeholder Perspective. Choice of the Risk Dimension. Choice of the Risk-Management Strategy. Ways to Conduct Risk Management in Banks. Eliminate/Avoid. Transfer. Absorb/Manage. Empirical Evidence. Summary. Appendix. Part A: Bank Performance. Part B: Systematic versus Specific Risk. RATIONALES FOR RISK MANAGEMENT IN BANKS. Risk Management and Value Creation in the Neoclassical Finance Theory. The Neoclassical Finance Theory. Corollaries from the Neoclassical Finance Theory with Regard to Risk Management. The Risk Management Irrelevance Proposition. Summary and Implications. Discrepancies Between Neoclassical Theory and Practice. Risk Management and Value Creation in the Neoinstitutional Finance Theory. Classification of the Relaxation of the Assumptions of the Neoclassical World. The Central Role of the Likelihood of Default. Agency Costs as Rationale for Risk Management. Agency Costs of Equity as a Rationale for Risk Management. Agency Costs of Debt as a Rationale for Risk Management. Coordination of Investment and Financing. Transaction Costs as a Rationale for Risk Management. The Costs of Financial Distress. The Costs of Implementing Risk Management. The Costs of Issuance. The Costs of a Stable Risk Profile. Taxes and Other Market Imperfections as Rationales for Risk Management. Taxes. Other Market Imperfections. Additional Rationales for Risk Management in Banks. Summary and Conclusions. Appendix. IMPLICATIONS OF THE PREVIOUS THEORETICAL DISCUSSION FOR THIS BOOK. CAPITAL STRUCTURE IN BANKS. The Role of Capital in Banks. Capital as a Means for Achieving the Optimal Capital Structure. Capital as Substitute for Risk Management to Ensure Bank Safety. The Various Stakeholders' Interests in Bank Safety. Available Capital. Required Capital from an Economic Perspective. Determining Capital Adequacy in the Economic Perspective. Summary and Consequences. Derivation of Economic Capital. Types of Risk. Economic Capital as an Adequate Risk Measure for Banks. Ways to Determine Economic Capital for Various Risk Types in Banks (Bottom-Up). Credit Risk. Market Risk. Operational Risk. Aggregation of Economic Capital across Risk Types. Concerns with the Suggested Bottom-Up Approach. Suggestion of an Approach to Determine Economic Capital from the Top Down. Theoretical Foundations. Suggested Top-Down Approach. Assessment of the Suggested Approach. Evaluation of Using Economic Capital. Summary. CAPITAL BUDGETING IN BANKS. Evolution of Capit. Bookseller Inventory # ABE_book_new_0471254762

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Schroeck, Gerhard
Published by Wiley (2002)
ISBN 10: 0471254762 ISBN 13: 9780471254768
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Book Description Wiley, 2002. Hardcover. Book Condition: New. book. Bookseller Inventory # 471254762

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