MOORAD CHOUDHRY has over twenty-one years experience in investment banking and was latterly head of treasury at Europe Arab Bank. He was previously head of treasury at KBC Financial Products and vice president in structured finance services at JPMorgan Chase Bank. Dr. Choudhry is Visiting Professor at the Department of Economics, London Metropolitan University, and Senior Research Fellow at the ICMA Centre, University of Reading. He is a Fellow of the ifs-School of Finance and a Fellow of the Chartered Institute for Securities and Investment. He is on the Editorial Board of the Journal of Structured Finance and the Editorial Advisory Board of American Securitization.GINO LANDUYTis Head of Sales at Conduit Capital in London. Prior to that, he was head of institutional structured sales at ING Bank in Brussels, and worked with KBC Bank N.V. in their Brussels, Frankfurt, New York, and London offices. Landuyt has an MA in applied economic sciences from the State University of Antwerp and an MBA from the Catholic University of Antwerp.

• Foreword xiPreface xiiiIntroduction xixMarket Instability xxDerivatives and Mathematical Modeling xxiSenior Management and Staying in the Game xxiiiMacroprudential Financial Regulation and Cycle-Proof Regulation xxiiiThe Way Forward xxvConclusion xxviPart One A Review of the Financial Crash 1Chapter 1 Globalization, Emerging Markets, and the Savings Glut 3Globalization 3A Series of Emerging-Market Crises 5Low-Yield Environment Due to New Players in the Financial Markets 8Artificially Low Exchange Rates 15Recommendations and Solutions for Global Imbalances 16Chapter 2 The Rise of Derivatives and Systemic Risk 22Systemic Risk 23Derivative Market Systemic Risk: Solutions for Improvement 30Chapter 3 The Too-Big-to-Fail Bank, Moral Hazard, and Macroprudential Regulation 37Banks and Moral Hazard 37Addressing Too-Big-to-Fail: Mitigating Moral Hazard Risk 42Macroprudential Regulation: Regulating Bank Systemic Risk 53Conclusion 58Chapter 4 Corporate Governance and Remuneration in the Banking Industry 60Bonuses and a Moral Dilemma 60A Distorted Remuneration Model 61Unsuitable Personal Behavior 64Conclusion 65Chapter 5 Bank Capital Safeguards: Additional Capital Buffers and Reverse Convertibles 67Capital Issues in a Bear Market 67Looking for New Capital Instruments 69Chapter 6 Economic Theories under Attack 76A Belief in Free and Self-Adjusting Markets 76Modigliani and Miller 85Markowitz and Diversification Tested 85Minsky Once Again 88Lessons to Be Learned by Central Banks 89Conclusion 92Part Two New Models for Banking and Investment 93Chapter 7 Long-Term Sustainable Investment Guidelines 95The Investment Landscape after the Crisis 95Government Debt and Demographics 97A New Economic Environment 103The Inflation Dragon 105Currencies and a Changing Geopolitical Landscape 115Exchange-Traded Funds: A Flexible Asset Class 118Conclusion 121Chapter 8 Bank Asset-Liability and Liquidity Risk Management 123Basic Concepts of Bank Asset-Liability Management 123Asset and Liability Management: The ALCO 134ALCO Reporting 137Principles of Banking Liquidity Risk Management 142Measuring Bank Liquidity Risk: Key Metrics 145Internal Funding Rate Policy 151Conclusion 157Chapter 9 A Sustainable Bank Business Model: Capital, Liquidity, and Leverage 158The New Bank Business Model 158Corporate Governance 167Liquidity Risk Management 168The Liquid Asset Buffer 175Conclusion 177Notes 179References 187About the Authors 189Index 191

MOORAD CHOUDHRY has over twenty-one years experience in investment banking and was latterly head of treasury at Europe Arab Bank. He was previously head of treasury at KBC Financial Products and vice president in structured finance services at JPMorgan Chase Bank. Dr. Choudhry is Visiting Professor at the Department of Economics, London Metropolitan University, and Senior Research Fellow at the ICMA Centre, University of Reading. He is a Fellow of the ifs-School of Finance and a Fellow of the Chartered Institute for Securities and Investment. He is on the Editorial Board of the Journal of Structured Finance and the Editorial Advisory Board of American Securitization.GINO LANDUYTis Head of Sales at Conduit Capital in London. Prior to that, he was head of institutional structured sales at ING Bank in Brussels, and worked with KBC Bank N.V. in their Brussels, Frankfurt, New York, and London offices. Landuyt has an MA in applied economic sciences from the State University of Antwerp and an MBA from the Catholic University of Antwerp.

• Foreword xiPreface xiiiIntroduction xixMarket Instability xxDerivatives and Mathematical Modeling xxiSenior Management and Staying in the Game xxiiiMacroprudential Financial Regulation and Cycle-Proof Regulation xxiiiThe Way Forward xxvConclusion xxviPart One A Review of the Financial Crash 1Chapter 1 Globalization, Emerging Markets, and the Savings Glut 3Globalization 3A Series of Emerging-Market Crises 5Low-Yield Environment Due to New Players in the Financial Markets 8Artificially Low Exchange Rates 15Recommendations and Solutions for Global Imbalances 16Chapter 2 The Rise of Derivatives and Systemic Risk 22Systemic Risk 23Derivative Market Systemic Risk: Solutions for Improvement 30Chapter 3 The Too-Big-to-Fail Bank, Moral Hazard, and Macroprudential Regulation 37Banks and Moral Hazard 37Addressing Too-Big-to-Fail: Mitigating Moral Hazard Risk 42Macroprudential Regulation: Regulating Bank Systemic Risk 53Conclusion 58Chapter 4 Corporate Governance and Remuneration in the Banking Industry 60Bonuses and a Moral Dilemma 60A Distorted Remuneration Model 61Unsuitable Personal Behavior 64Conclusion 65Chapter 5 Bank Capital Safeguards: Additional Capital Buffers and Reverse Convertibles 67Capital Issues in a Bear Market 67Looking for New Capital Instruments 69Chapter 6 Economic Theories under Attack 76A Belief in Free and Self-Adjusting Markets 76Modigliani and Miller 85Markowitz and Diversification Tested 85Minsky Once Again 88Lessons to Be Learned by Central Banks 89Conclusion 92Part Two New Models for Banking and Investment 93Chapter 7 Long-Term Sustainable Investment Guidelines 95The Investment Landscape after the Crisis 95Government Debt and Demographics 97A New Economic Environment 103The Inflation Dragon 105Currencies and a Changing Geopolitical Landscape 115Exchange-Traded Funds: A Flexible Asset Class 118Conclusion 121Chapter 8 Bank Asset-Liability and Liquidity Risk Management 123Basic Concepts of Bank Asset-Liability Management 123Asset and Liability Management: The ALCO 134ALCO Reporting 137Principles of Banking Liquidity Risk Management 142Measuring Bank Liquidity Risk: Key Metrics 145Internal Funding Rate Policy 151Conclusion 157Chapter 9 A Sustainable Bank Business Model: Capital, Liquidity, and Leverage 158The New Bank Business Model 158Corporate Governance 167Liquidity Risk Management 168The Liquid Asset Buffer 175Conclusion 177Notes 179References 187About the Authors 189Index 191

MOORAD CHOUDHRY has over twenty-one years experience in investment banking and was latterly head of treasury at Europe Arab Bank. He was previously head of treasury at KBC Financial Products and vice president in structured finance services at JPMorgan Chase Bank. Dr. Choudhry is Visiting Professor at the Department of Economics, London Metropolitan University, and Senior Research Fellow at the ICMA Centre, University of Reading. He is a Fellow of the ifs-School of Finance and a Fellow of the Chartered Institute for Securities and Investment. He is on the Editorial Board of the Journal of Structured Finance and the Editorial Advisory Board of American Securitization.GINO LANDUYTis Head of Sales at Conduit Capital in London. Prior to that, he was head of institutional structured sales at ING Bank in Brussels, and worked with KBC Bank N.V. in their Brussels, Frankfurt, New York, and London offices. Landuyt has an MA in applied economic sciences from the State University of Antwerp and an MBA from the Catholic University of Antwerp.

• Foreword xiPreface xiiiIntroduction xixMarket Instability xxDerivatives and Mathematical Modeling xxiSenior Management and Staying in the Game xxiiiMacroprudential Financial Regulation and Cycle-Proof Regulation xxiiiThe Way Forward xxvConclusion xxviPart One A Review of the Financial Crash 1Chapter 1 Globalization, Emerging Markets, and the Savings Glut 3Globalization 3A Series of Emerging-Market Crises 5Low-Yield Environment Due to New Players in the Financial Markets 8Artificially Low Exchange Rates 15Recommendations and Solutions for Global Imbalances 16Chapter 2 The Rise of Derivatives and Systemic Risk 22Systemic Risk 23Derivative Market Systemic Risk: Solutions for Improvement 30Chapter 3 The Too-Big-to-Fail Bank, Moral Hazard, and Macroprudential Regulation 37Banks and Moral Hazard 37Addressing Too-Big-to-Fail: Mitigating Moral Hazard Risk 42Macroprudential Regulation: Regulating Bank Systemic Risk 53Conclusion 58Chapter 4 Corporate Governance and Remuneration in the Banking Industry 60Bonuses and a Moral Dilemma 60A Distorted Remuneration Model 61Unsuitable Personal Behavior 64Conclusion 65Chapter 5 Bank Capital Safeguards: Additional Capital Buffers and Reverse Convertibles 67Capital Issues in a Bear Market 67Looking for New Capital Instruments 69Chapter 6 Economic Theories under Attack 76A Belief in Free and Self-Adjusting Markets 76Modigliani and Miller 85Markowitz and Diversification Tested 85Minsky Once Again 88Lessons to Be Learned by Central Banks 89Conclusion 92Part Two New Models for Banking and Investment 93Chapter 7 Long-Term Sustainable Investment Guidelines 95The Investment Landscape after the Crisis 95Government Debt and Demographics 97A New Economic Environment 103The Inflation Dragon 105Currencies and a Changing Geopolitical Landscape 115Exchange-Traded Funds: A Flexible Asset Class 118Conclusion 121Chapter 8 Bank Asset-Liability and Liquidity Risk Management 123Basic Concepts of Bank Asset-Liability Management 123Asset and Liability Management: The ALCO 134ALCO Reporting 137Principles of Banking Liquidity Risk Management 142Measuring Bank Liquidity Risk: Key Metrics 145Internal Funding Rate Policy 151Conclusion 157Chapter 9 A Sustainable Bank Business Model: Capital, Liquidity, and Leverage 158The New Bank Business Model 158Corporate Governance 167Liquidity Risk Management 168The Liquid Asset Buffer 175Conclusion 177Notes 179References 187About the Authors 189Index 191