Risk Management in Banking; Contents; Foreword; Preface; About the Author; 1: Risks and Risk Management; 1.1 UNCERTAINTY, RISK AND EXPOSURE TO RISK; 1.2 BROAD CLASSES OF FINANCIAL RISK; 1.2.1 Credit Risk; 1.2.2 Market Risk; 1.2.3 Liquidity Risk; 1.2.4 Interest Rate Risk; 1.2.5 Foreign Exchange Risk; 1.2.6 Solvency Risk; 1.2.7 Operational Risk; 1.3 BUSINESS LINES IN BANKING; 1.4 BANKING REGULATIONS AND ACCOUNTING STANDARDS; 1.5 RISK MANAGEMENT; 1.5.1 Motivations; 1.5.2 The Risk Processes; 1.5.2.1 Credit Risk Limits and Delegations; 1.5.2.2 Market Risk and Trading Activities 1.5.3 Risk Management Organization and Roles1.5.3.1 The Risk Department and the ``Three Lines of Defense ́́Model; 1.5.3.2 The Asset and Liability Management Department; 1.5.3.3 Enterprise-wide Risk Management (ERM); 2: Banking Regulations Overview; 2.1 REGULATION PRINCIPLES; 2.2 CAPITAL ADEQUACY; 2.3 SOME LESSONS OF THE FINANCIAL CRISIS; 2.3.1 Liquidity; 2.3.2 Fair Value; 2.3.3 Solvency; 2.3.4 Pro-cyclicality; 2.3.5 Securitizations and Contagion of Credit Risk; 2.3.6 Rating Agencies and Credit Enhancers; 2.4 THE RESPONSES OF REGULATORS TO THE FINANCIAL CRISIS 3: Balance Sheet Management and Regulations3.1 THE NEW REGULATORY RATIOS; 3.1.1 Capital Adequacy; 3.1.2 The Liquidity Coverage Ratio (LCR); 3.1.3 The Net Stable Funding Ratio (NSFR); 3.1.4 The Leverage Ratio; 3.2 COMPLIANCE OF A COMMERCIAL BALANCE SHEET: EXAMPLE; 3.2.1 Capital Base; 3.2.2 Risk Weights, Asset Mix and Capital; 3.2.3 Compliance with NSFR; 3.2.4 LCR Compliance; 3.3 CREATION OF VALUE; 4: Liquidity Management and Liquidity Gaps; 4.1 LIQUIDITY AND LIQUIDITY RISK; 4.1.1 Liquidity and Financing; 4.1.2 Liquidity Risk in the Banking Book; 4.2 LIQUIDITY GAP TIME PROFILES 4.3 TYPES OF LIQUIDITY GAPS4.4 MANAGING INCREMENTAL GAPS; 4.5 DYNAMIC LIQUIDITY GAPS; 4.6 FUNDING LIQUIDITY MANAGEMENT; 4.7 LIQUIDITY CRISES AND STRESS SCENARIOS; 5: Interest Rate Gaps; 5.1 INTEREST RATE RISK; 5.1.1 Interest Rate Risk, the Term Structure and Mismatch Risk; 5.2 INTEREST RATE GAPS; 5.3 CALCULATIONS OF INTEREST RATE GAP; 5.3.1 Calculation of Interest Rate Gaps; 5.3.2 Mapping Interest Rates to Selected Risk Factors; 5.3.3 Sample Gap Reports; 5.4 THE GAP MODEL; 5.5 NET INTEREST INCOME AND INTEREST RATE GAPS; 5.6 GAP MANAGEMENT AND HEDGING; 5.7 LIMITATIONS OF INTEREST RATE GAPS 5.7.1 Customers' Rates5.7.2 Regulated Rates; 5.7.3 Embedded Options; 5.8 APPENDIX: GAPS AND INTEREST RATE SENSITIVITY; 6: Hedging and Gap Management; 6.1 THE TRADE-OFFS OF GAP MANAGEMENT; 6.2 MANAGING INTEREST RATE GAPS WITH INTEREST RATE DERIVATIVES; 6.3 MANAGING INTEREST RATE GAPS; 6.4 SETTING LIMITS TO GAPS; 6.5 HEDGING THE VARIATIONS OF THE TERM STRUCTURE OF INTEREST RATES (CASE STUDY); 6.6 HEDGING BUSINESS RISK AND INTEREST RATE RISK; 7: Economic Value of the Banking Book; 7.1 ECONOMIC VALUE AND ITS SENSITIVITY; 7.2 ECONOMIC VALUE AND NET INTEREST INCOME; 7.2.1 Sample Bank Balance Sheet.