商业银行管理 ROSE 7e 课后答案chapter09.docx

商业银行管理 ROSE 7e 课后答案chapter09.docx

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商业银行管理ROSE7e课后答案chapter09

CHAPTER9

RISKMANAGEMENTUSINGASSET-BACKEDSECURITIES,LOANSALES,CREDITSTANDBYS,ANDCREDITDERIVATIVES

GoalofThisChapter:

Thepurposeofthischapteristolearnaboutsomeofthenewerfinancialinstrumentsthatfinancialinstitutionshaveusedinrecentyearstohelpreducetheriskexposureoftheirinstitutionsand,insomecases,toaidingeneratingnewsourcesoffeeincomeandinraisingnewfundstomakeloansandinvestments.

KeyTopicsinThisChapter

∙TheSecuritizationProcess

∙Securitization’sImpactandRisks

∙SalesofLoans:

NatureandRisks

∙StandbyCredits:

PricingandRisks

∙CreditDerivativesandCDOs

∙BenefitsandRisksofCreditDerivatives

ChapterOutline

I.Introduction

II.SecuritizingBankLoansandOtherAssets

A.NatureofSecuritization

B.TheSecuritizationProcess

C.AdvantagesofSecuritization

D.TheBeginningsofSecuritization–TheHomeMortgageMarket

1.CollateralizedMortgageObligations–CMOs

2.LoanBackedBonds

E.ExamplesofOtherAssetsThatHaveBeenSecuritized

F.TheImpactofSecuritizationUponLendingInstitutions

G.Regulators’ConcernsAboutSecuritization

Ill.SalesofLoanstoRaiseFunds

A.NatureofLoanSales

B.LoanParticipationsandLoanStrips

C.ReasonsBehindLoanSales

D.TheRisksinLoanSales

IV.StandbyCreditLetters

A.TheNatureofStandbyCredits（ContingentObligations）

B.TypesofStandbyCreditLetters

C.AdvantagesofStandbys

D.ReasonsforRapidGrowthofStandbys

E.TheStructureofStandbyLettersofCredit

F.TheValueandPricingofStandbyLetters

G.SourcesofRiskwithStandbyCredits

H.RegulatoryConcernsaboutStandbyCreditArrangements

I.ResearchStudiesonStandbys,LoanSales,andSecuritizations

V.CreditDerivatives:

ContractsforReducingCreditRiskExposureontheBalanceSheet

A.AnAlternativetoSecuritization

B.CreditSwaps

C.CreditOptions

D.CreditDefaultSwaps

E.CreditLinkedNotes

F.CollateralizedDebtObligations

G.RisksAssociatedWithCreditDerivatives

VI.SummaryoftheChapter

ConceptChecks

9-1.Whatdoessecuritizationofassetsmean?

Securitizationinvolvesthepoolingofgroupsofearningassets,removingthosepooledassetsfromthebank’sbalancesheet,andissuingsecuritiesagainstthepool.Asthepooledassetsgenerateinterestincomeandrepaymentsofprincipalthecashgeneratedbythepooledearningassetsflowsthroughtoinvestorswhopurchasedthosesecurities.

9-2.Whatkindsofassetsaremostamenabletothesecuritizationprocess?

Thebesttypesofassetstopoolarehighquality,fairlyuniformloans,suchashomemortgagesorcreditcardreceivables.

9-3.Whatadvantagesdoessecuritizationofferlendinginstitutions?

Securitizationgiveslendinginstitutionstheopportunitytousetheirassetsassourcesoffundsand,inparticular,toremovelower-yieldingassetsfromthebalancesheettobereplacedwithhigher-yieldingassets.

9-4.Whatrisksofsecuritizationshouldthemanagersoflendinginstitutionsbeawareof?

Lendinginstitutionsoftenhavetousethehighest-qualityassetsinthesecuritizationprocesswhichmeanstheremainderoftheportfoliomaybecomemorerisky,onaverage,increasingthebank’scapitalrequirements.

9-5.Supposethatabanksecuritizesapackageofitsloansthatbearagrossannualinterestyieldof13percent.Thesecuritiesissuedagainsttheloanpackagepromiseinterestedinvestorsanannualizedyieldof8.25percent.Theexpecteddefaultrateonthepackagedloansis3.5percent.Thebankagreestopayanannualfeeof0.35percenttoasecuritydealertocoverthecostofunderwritingandadvisoryservicesandafeeof0.25percenttoArunsonMortgageServicingCorporationtoprocesstheexpectedpaymentsgeneratedbythepackagedloans.Iftheaboveitemsrepresentallthecostsassociatedwiththissecuritizationtransactioncanyoucalculatethepercentageamountofresidualincomethebankexpectstoearnfromthisparticulartransaction?

Thebank’sestimatedresidualincomeshouldbeabout:

GrossLoan

Security

ExpectedDefaultOn

Underwriting

Yield

-

InterestRate

-

PackagedLoans

-

AndAdvisoryFee

13%

8.25%

3.5%

.35%

Servicing

Expected

-

Fee

=

ResidualIncome

.25%

.65%

9-6.Whatadvantagesdosalesofloanshaveforlendinginstitutionstryingtoraisefunds?

Loansalespermitalendinginstitutiontogetridoflessdesirableorlower-yieldingloansandallowthemtoraiseadditionalfunds.Inaddition,replacingloansthataresoldwithmarketablesecuritiescanincreasetheliquidityofthelendinginstitution.

9-7.Arethereanydisadvantagestousingloansalesasasignificantsourceoffundingforbanksandotherfinancialinstitutions?

Thelendermayfindthemselvessellingofftheirhighestqualityloans,leavingtheirloanportfoliostockedwithpoor-qualityloanswhichcantriggertheattentionofregulatorswhomightrequirehighercapitalrequirementsforthelender..

9-8.Whatisloanservicing?

Loanservicinginvolvesmonitoringborrowercompliancewithaloan’sterms,collectingandrecordingloanpayments,andreportingtothecurrentholderoftheloan.

9-9.Howcanloanservicingbeusedtoincreaseincome?

Manybankshaveretainedservicingrightsontheloanstheyhavesold,earningfeesfromthecurrentownersofthoseloans.

9-10.Whatarestandbycreditletters?

Whyhavetheygrownsorapidlyinrecentyears?

Standbycreditlettersarepromisesofalendertopayoffanobligationofoneofitscustomersincasethatcustomercannotpay.Itcanalsobeaguaranteethataprojectofcustomeriscompletedontime.Thereareseveralreasonsthatstandbycreditagreementshavegrown.Therehasbeenatremendousgrowthindirectfinancingbycompanies（issuanceofcommercialpaper）andwithgrowingconcernsaboutdefaultriskonthesedirectobligationsbankshavebeenaskedtoprovideacreditguarantee.AnotherreasonfortheirgrowthistheabilityofthebanktousetheirskillstoaddfeeincometothebankAnotherreasonisthatthesehavearelativelylowcostforthebank.Finallybanksandcustomersperceivethattherehasbeenanincreaseineconomicfluctuationsandtherehasbeenincreaseddemandforriskreducingdevices.

9-11.Whoaretheprincipalpartiestoastandbycreditagreement?

Theprincipalpartiestoastandbycreditagreementaretheissuingbankorotherinstitution,theaccountpartywhorequestedtheletter,andthebeneficiarywhowillreceivepaymentfromtheissuinginstitutioniftheaccountpartycannotmeetitsobligation.

9-12.Whatrisksaccompanyastandbycreditletterfor（a）theissuerand（b）thebeneficiary?

Standbyspresenttheissuerwiththedangerthatthecustomerwhosecredittheissuerhasbackstoppedwiththeletterwillneedaloan.Thatis,theissuer’scontingentobligationwillbecomeanactualliability,dueandpayable.Thismaycausealiquiditysqueezefortheissuer.Thebeneficiarythathastocollectonthelettermustbesureitmeetsalltheconditionsrequiredforpresentationoftheletteroritwillnotbeabletorecoveritsfunds.

9-13Howcanalendinginstitutionsmitigatetherisksinherentinissuingstandbycreditletters?

Theycanusevariousdevicestoreduceriskexposurefromthestandbycreditletterstheyhaveissued,suchas:

1.Frequentlyrenegotiatingthetermsofanyloansextendedtocustomerswhohavestandbycreditguaranteessothatloantermsarecontinuallyadjustedtothecustomers’changingcircumstancesandthereislessneedforthebeneficiariesofthoseguaranteestopressforcollection.

2.Diversifyingstandbylettersissuedbyregionandbyindustrytoavoidconcentrationofriskexposure.

3.Sellingparticipationsinstandbysinordertoshareriskwithavarietyoflendinginstitutions.

9-14.Whywerecreditderivativesdeveloped?

Whatadvantagesdotheyhaveoverloansalesandsecuritizations,ifany?

Creditderivativesweredevelopedbecausenotallloanscanbepooled.Inordertobepooled,thegroupofloanshastohavecommonfeaturessuchasmaturitiesandcashflowpatternsandmanybusinessloansdonothavethosecommonfeatures.Creditderivativescanofferthebeneficiaryprotectioninthecaseofloandefaultandmayhelpthebankreduceitscreditriskandpossiblyitsinterestrateriskaswell.

9-15.Whatisacreditswap?

Forwhatkindsofsituationswasitdeveloped?

Acreditswapiswheretwolendersagreetoswapportionsoftheircustomer’sloanrepayments.Itwasdevelopedsothatbanksdonothavetorelyononenarrowmarketarea.Theycanspreadouttheriskintheportfoliooveralargermarketarea.

9-16.Whatisatotalreturnswap?

Whatadvantagesdoesitoffertheswapbeneficiaryinstitution?

Atotalreturnswapisatypeofcreditswapwherethedealerguaranteestheswappartiesaspecificrateofreturnontheircreditassets.Atotalreturnswapcanallowabanktoearnamorestablerateofreturnthanitcouldearnonitsloans.Thistypeofarrangementcanalsoshiftthecreditriskandtheinterestrateriskfromonebanktoanother.

9-17.Howdocreditoptionswork?

Whatcircumstancesresultintheoptioncontractpayingoff?

Acreditoptionhelpsguardagainstlossesinthevalueofacreditassetorhelpsoffsethigherborrowingcosts.Abankwhichpurchasesacreditoptioncontractwillexercisetheiroptioniftheassetdeclinessignificantlyinvalueorlosesitsvaluecompletely.Iftheassetsarepaidoffasexpectedthentheoptionwillnotbeexercisedandthebankwilllosethepremiumtheypaidfortheoption.Abankcanalsopurchaseacreditoptionwhichwillbeexercisediftheirborrowingcostsriseaboveaspecifiedspre