New banking and investment business models to navigate the post-financial crisis environment The financial crisis of 2007-2008 has discredited business models in the banking and fund management industries. In The Future of Finance, Moorad Choudhry and Gino Landuyt argue that banks must realign their business models, implying a lower return-on-equity; diversifying their funding sources; and increasing liquidity reserves. On the investment side, the authors discuss how diversification did not reduce risk, but rather amplified it, and failed to stabilize returns. The authors conclude that the clear lesson from the crisis is to know one's risk. A lesson that is best served by concentrating on assets and sectors that you understand. Examines the weaknesses in the business models of many institutions, as well as the theoretical foundation for professionals in the field of finance Identifies the shortcomings of Modern Portfolio Theory Addresses how investment managers can find new strategies for creating "e;alpha"e; and why they need to re-vamp their fee structures Filled with in-depth insights and practical advice, The Future of Finance will provide bankers and investment managers with a guide to realigning their businesses in order to prosper in the post-crisis financial markets.

New banking and investment business models to navigate thepost-financial crisis environmentThe financial crisis of 2007-2008 has discredited businessmodels in the banking and fund management industries. In TheFuture of Finance, Moorad Choudhry and Gino Landuyt argue thatbanks must realign their business models, implying a lowerreturn-on-equity; diversifying their funding sources; andincreasing liquidity reserves. On the investment side, the authorsdiscuss how diversification did not reduce risk, but ratheramplified it, and failed to stabilize returns. The authors concludethat the clear lesson from the crisis is to know one's risk. Alesson that is best served by concentrating on assets and sectorsthat you understand.* Examines the weaknesses in the business models of manyinstitutions, as well as the theoretical foundation forprofessionals in the field of finance* Identifies the shortcomings of Modern Portfolio Theory* Addresses how investment managers can find new strategies forcreating "alpha" and why they need to re-vamp their feestructuresFilled with in-depth insights and practical advice, TheFuture of Finance will provide bankers and investment managerswith a guide to realigning their businesses in order to prosper inthe post-crisis financial markets.

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