PREFACE TO THE FOURTH EDITION
“It was a bright cold day in April, and the clocks were striking thirteen.”
[The opening sentence in George Orwell, “1984”, published 1949]
The winds of change, if anything, have only become stronger over the financial landscape since our third edition. Beginning with the credit crisis in 2007, then the sovereign crisis, and now there is more change in the form of disruptive innovations revolutionizing global banking and financial services. The clocks could soon start striking thirteen!
“Banks, regulators, governments, and the entire global financial system are still finding ways to deal with the aftershocks of the crisis, and to avert new ones in future.” This sentence from the second edition was still valid at the time of the third edition. Now in our fourth edition, it seems that the credit and sovereign crisis of yesteryears pale in comparison with the existential problem facing the global financial system.
The fourth edition in its introductory chapter deals with the future of the banking industry in the context of the global financial and economic crisis that has taken its toll on sovereign powers. It has updated chapters on advanced topics on ‘credit risk management’ that discusses various models of credit risk measurement and management. ‘Risk management’, of course, occupies centre-stage, and risks faced by the banking industry from its investment (market risk), solvency (capital), interest rate volatility and adequate liquidity have to be measured and managed. All the chapters have been rigorously updated and revamped to help users of the book understand how these risks can be managed.
How the book has been organized
With risk management in sharp focus, the book is reorganized to enable the modern banker, academician or student to recognize risks in banking and financial services, and take decisions to achieve the most favourable risk-return trade-offs.
The book is divided into 2 major sections – ‘Management of Banks’ and ‘Management of Financial Services’. Chapter 1 is an introduction to the changing dynamics of one of the most regulated industries in the world. Chapters 2 to 12 examine various facets of managerial and risk management aspects of banking in detail. The remaining chapters 13 to 22 deal with management of financial services that banks offer. Relevant description of financial markets, co-banking institutions and legal and regulatory reforms impacting banking and financial services have been elaborated upon.
New features in this edition
- Chapters related to banking, where many reforms have been carried out, have been substantially updated and revised.
- New portions in chapters have been added to address contemporary issues in the industry.
- Almost every chapter contains a case study and live examples. The case studies are followed by questions to explore further.
- The questions at the end of most chapters range from simple ‘True’ or ‘False’ questions to numerical problems to enable better understanding of the concepts.
- Additional problems and research questions have been added to many chapters to provide students the opportunity to work with data and circumstances that would help them understand basic concepts better.
- Detailed web references have been provided to enable deeper researching of the topics.
- More topics have been included for possible research by interested students.
- A notable feature of this book is that the topics presented in this book would be found in advanced textbooks on banking and finance. However, the explanations and illustrations are aimed at those with no basic knowledge of both banking and financial concepts. Most concepts are explained in simple terms with the aid of diagrams, figures and simple worked out examples. The technical details/advanced concepts related to each chapter are provided as annexures.
In short, the book, written by practitioners turned consultants/academicians, uniquely focuses on managerial issues in the banking and financial services industry. The book offers something unique for various types of target audiences. For those seeking knowledge of banking and financial services, the book explains basic concepts underlying key banking activities in very simple terms, and demonstrates how banks make financial decisions. For practitioners, the book enables building a sound conceptual foundation that will help them evaluate the overall organizational impact of decisions in their area of expertise, as well as provides tips to trade off between risk and return. Additionally, the book provides the big picture for managing the entire organization, since each chapter in the book is based on a strategic function of the bank, and addresses the basic concepts and application of these concepts in modern day management of banking and financial services. It is also interesting that the section on ‘basic concepts’ (presented as Section I) of each chapter has not undergone much change. This only goes to show that basic concepts of financial management and objectives of the banking and financial services industry have not changed. What do change are the applications of the basic concepts and their evolution to suit the environment in which they operate.