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Journal Article
Innovations in performance measurement in banking
In banking over the past 10 years, management accountants have been instrumental in the creation of new management processes and performance systems. Their innovations have enabled banks to create internal capital markets, measure risks so as to facilitate their proper hedging and pricing, and create risk-based performance standards for lines of business. They have also made great progress in creating data bases and analytical tools to resolve strategic conflicts.> This article discusses the evolution of commercial banks into semiautonomous lines of business and the managerial issues and ...
Journal Article
Inflation-indexed bonds: the dog that didn't bark
The introduction by the U.S. Treasury of inflation-indexed notes was one of the most widely publicized innovations in the U.S. capital markets in recent years. Since their introduction in January 1997, $57 billion in 5-, 10-, and 30-year Treasury Inflation-Protected Securities (TIPS) has been issued, and the Treasury has recently announced that TIPS will also be offered as small- denomination savings bonds. Because both the coupon and the principal of TIPS vary with the consumer price index, the Treasury believes these notes will appeal to risk-adverse investors seeking protection from ...
Journal Article
Failures in risk management
Risk management has received increasing attention in recent years, both from academics and from practitioners. The heightened interest is the result of a number of coincident secular trends, including increased investment in volatile emerging markets and the growing role of capital markets in both developed and emerging economies, as well as the introduction of volatile financial innovations. Risk management has also attracted attention as a result of the repeated and well-publicized failures associated with its implementation. Despite the increased attention paid to risk management, frequent ...
Journal Article
Specialization, risk, and capital in banking
Diversification is certainly the simplest and perhaps the oldest approach to managing the trade-off between portfolio risk and return. Because diversification tends to reduce risk without a proportional reduction in returns, an overwhelming majority of commercial banks have diversified portfolios. Larger banks usually are organized into multiple specialized lines of business; smaller banks generally hold a higher proportion of marketable securities whose returns are not tied to a particular geographic market. A much smaller number of banks have chosen to ignore the benefits of diversification ...
Journal Article
Economic profit and performance measurement in banking
Successful bank operation requires managers to weigh complex trade-offs between growth, return, and risk. In recent years banks increasingly have adopted innovative performance metrics based on the concept of economic profit, rather than accounting earnings to assist managers in making such difficult and complex decisions. Banks hope in this way to elicit better decision-making by managers and also too align managerial behavior more closely with the interests of shareholders. This article analyzes the use of economic profit for measuring the performance of banks, focusing on the allocation ...