Financial Instruments and Institutions

Stephen G. Ryan is an Associate Professor of Accounting and Robert Stovall Faculty Fellow at the SternSchool of Business, New York University. Prior to that position, he was an assistant professor of accounting at the Yale School of Organization and Management and has been an associate consultant with Bain & Company. He has written numerous articles that have appeared in such publications as Accounting Horizons, Financial Analysts Journal, the Accounting Review, and the Journal of Financial Statement Analysis. He is an Editor of the Review of Accounting Studies. In addition, he is on the FASB's Financial Institutions Advisory Group and its Liabilities and Equity Resource Group.

• Preface ixAcknowledgments xviiChapter 1 Financial Instruments and Institutions 1Main Ingredients of the Analysis of Financial Instruments 4Activities and Risks of Financial Institutions 11Valuation of Financial Institutions in Practice 16Chapter 2 Nature and Regulation of Depository Institutions 19Activities of Depository Institutions 19Bank Regulation 22Bank Subtypes 35Recent Trends 38Chapter 3 Thrifts 45Financial Statement Structure 46Main Risk-Return Trade-Offs and Financial Analysis Issues 56Chapter 4 Interest Rate Risk and Net Interest Earnings 63Views of Interest Rate Risk 64Interest Rate Risk Concepts 66Analysis of Net Interest Earnings 78Rate-Volume Analysis 81Repricing Gap Disclosures 84Chapter 5 Credit Risk and Losses 93Economics of Credit Risk 95Accounts for Loans and Loan Losses 97Accounting and Disclosure Rules for Unimpaired Loans 100Accounting and Disclosure Rules for Impaired Loans 107Loan Portfolio Quality and Loan Loss Reserve Adequacy 110Research on Banks’ Loan Loss Reserves 118Appendix 5A: SunTrust Banks—After the Restatement 119Chapter 6 Fair Value Accounting for Financial Instruments: Concepts, Disclosures, and Investment Securities 131Fair Value Accounting for Financial Instruments 133Disclosures of the Fair Value of Financial Instruments 141Investment Securities 149Appendix 6A: Washington Federal’s Big Gap 158Chapter 7 Mortgage Banks 161Mortgage Banking Industry, Major Players, and Activities 162Financial Statement Structure 167Main Risk-Return Trade-Offs and Financial Analysis Issues 174Accounting for Fees and Costs 186Chapter 8 Securitizations 189Why and What? 192Securitization Structures 196SFAS No. 140 204Financial Analysis Issues 216Empirical Research on Securitizations 221Servicing Rights and Prepayment-Sensitive Securities 222Appendix 8A: Doral Financial’s Interesting Interest-Only Strips 224Chapter 9 Elements of Structured Finance Transactions 235Special-Purpose/Variable-Interest Entities 236Related Transactions 244Hybrid Financial Instruments 248Financial Guarantees 251Recent SEC Decisions Regarding Structured Finance Transactions 253Chapter 10 Commercial Banks 255Balance Sheet 257Income Statement 261Cash Flow Statement 265Chapter 11 Derivatives and Hedging 269Derivatives 272Hedging 282SFAS No. 133 (1998), as Amended 285Framework for Assessing Financial Institutions’ Derivatives and Hedging 308Chapter 12 Market Risk Disclosures 311Overview of FRR No. 48 (1997) 312Tabular Format 315Sensitivity Approach 322Value-at-Risk Approach 326Comparison of Disclosure Approaches 331Effect of SunTrust’s Derivatives and Hedging on Its Market Risk 332Research 337Appendix 12A: Bank of America’s Derivatives, Hedging, and Market Risk 337Chapter 13 Lessors and Lease Accounting 347Competitive Advantages of Leasing 350Lease Structures and Contractual Terms 352Lessors’ Risks 355Lease Accounting Methods 357Analysis Issues Regarding Lease Accounting Methods 366Special Lease Transactions 369Lessors’ Financial Statements 374Lease Disclosures 379Possible Future Changes in Lease Accounting 387Chapter 14 Insurers and Insurance Accounting 389Products 391Risk-Return Trade-Offs 396Regulation 403Primary Insurance Accounting Standards 405Accounting Standards Governing Embedded Derivatives and Other Life Insurance Policy Features 421Financial Statements 423Line of Business Disclosures 428Other Insurance Accounting Systems 429Chapter 15 Property-Casualty Insurers’ Loss Reserve Disclosures 435Loss Reserve Footnote 438Loss Reserve Development Disclosures 440Calculating Loss Reserves by Accident Year 444Calculating Loss Reserve Revisions by Accident Year 446Calculating Claim Payments by Accident Year and Tail 448Constructing Accident Year Loss Reserve T Accounts 452Property-Casualty Expense Ratios 453Chapter 16 Reinsurance Accounting and Disclosure 457Accounting and Analysis Issues 459Reinsurance Contracts 462Accounting for Reinsurance Contracts 472Reinsurance Disclosures and Analysis 487Evolution of Financial Reporting for Reinsurance 493Index 497