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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.Abankcanalsopurchaseacreditoptionwhichwillbeexercisediftheirborrowingcostsriseaboveaspecifiedspreadbetweenth