Bank Management

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Prof. Dr. Hans-Peter Burghof, University of Hohenheim, Bank Management b) Period and Liquidity Transformation - Financing long-term investments with short-term funds (positive period transformation) and vice versa (negative period transformation) - Option to withdraw financial resources out of long-term projects prior to maturity Enabled by: Secondary markets Price and liquidity risks Possibility of hedging with particular financial products Intermediation Counter party risk for the investor Limited default risk of the financial intermediary by setting financing rules 4
Prof. Dr. Hans-Peter Burghof, University of Hohenheim, Bank Management Financial Rules to Limit the Risks that Arise from Period and Liquidity Transformation Golden Banking Rule/Golden Rule of Finance: Total maturity matching Golden Rule of Balance Sheet Basis: “Schichtenbilanz” assets liabilities A1: Assets with a capital commitment of over 4 years A2: Assets with a capital commitment of 3 months to 4 years A3: Assets with a capital commitment up to 3 months A1 ≤ F1 and A1+A2 ≤ F1+F2 “Bodensatzregel” (Principles II and III of BAKred) Rule 1: A1 ≤ F1 + 0,6 F2 + 0,1 F3 5 F1: Financial resources invested longer than 4 years F2: : Financial resources invested 3 months to 4 years F3: : Financial resources invested less than 3 months Rule 2: A2 ≤ (F1 + 0,6 F2 + 0,1 F3 - A1) + 0,4 F2 + 0,2 F3
Page 1 and 2: Contents Prof. Dr. Hans-Peter Burgh
Page 3: Prof. Dr. Hans-Peter Burghof, Unive
Page 7 and 8: Idealized Model Calculation Arrow-D
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Page 11: Exercise on Risk Transformation Pro

Bank Management

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