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