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Introduction to
I truly welcome this thoroughly revised edition of the Introduction to Banking textbook. Its authors are
Introduction to
BANKING
world-class scholars who on a daily basis research a wide array of highly relevant banking topics and
maintain many close contacts with the commercial and central banking community. I can see no better
guides to lead undergraduates into the fascinating (and at times bewildering) banking landscape.
Steven Ongena, Professor of Banking, University of Zurich, Swiss Finance Institute and CEPR
I heartily endorse Introduction to Banking 2nd Edition, which thoroughly covers the topic of banking in
the post-crisis world. Unlike other textbooks which are very US-centric, this is a global banking book
which covers issues and institutions on a worldwide basis.
2nd Edition
Allen N. Berger, H. Montague Osteen, Jr., Professor in Banking and Finance, Moore School of Business, and Carolina
Distinguished Professor, University of South Carolina; Senior Fellow at Wharton Financial Institutions Center and
BANKING
Fellow of the European Banking Center, Tilburg University
This thoroughly revised edition of the book contains inestimable new chapters on banking crises, new
Barbara Casu
Claudia Girardone
financial instruments and a wide range of advanced issues. The topics are examined with a distinguishing
combination of analytical and practical approaches. This makes the book an invaluable instrument for
teaching banking to undergraduates both at universities and business schools. I highly recommend it.
Elena Carletti, Professor of Finance, Bocconi University, IGIER and CEPR
Philip Molyneux
Introduction to Banking 2nd Edition offers a comprehensive insight into the business of banking, providing up-to-
date information about the impact of the financial crisis upon the banking sector globally and the far-reaching regulatory
reforms. Written by expert authors, this book covers both theoretical and applied issues relating to the global banking
industry, highlighted by examples from across Europe and the wider international arena. Organised into five main
sections, this edition includes a brand new section – advanced topics in banking.
The new edition
Familiarises students with the recent trends affecting the banking business.
Covers contemporary central banking and bank regulation issues comparing the UK, eurozone and the US,
providing students with the most up-to-date information on banking practice.
Provides a strong focus on bank management issues and prepares students to understand the different financial
features of commercial and investment banking business.
Outlines recent changes in developed and developing countries’ banking and financial systems, familiarising students
with different types of banking systems and how global trends impact on different types of banking markets.
Covers advanced topics in banking, from the growth of the ‘shadow banking system’ to bank mergers and acquisition
activities, and issues and challenges surrounding the industrial structure of modern banking markets.
Suitable for all undergraduate students taking a course in banking as well as professionals entering the banking industry. 2nd Edition
It also provides solid background reading for postgraduate students who, in this updated edition, can benefit from
three new chapters exploring more advanced topics in banking.
Casu
Barbara Casu is the Director of the Centre for Banking Research at Cass Business School, City University London, where she is Associate Girardone
Professor of Banking. Her research interests are in the area of banking, financial regulation, corporate governance and industrial organisation.
Barbara has published over 30 papers in international peer-reviewed journals, including The Review of Economics and Statistics and the Journal of
Molyneux
Money, Credit and Banking.
Claudia Girardone is Professor of Banking and Finance at the Essex Business School, University of Essex, UK.
Her current research focus is on banking sector performance and efficiency, bank corporate governance and
the industrial structure of banking. She has published widely in the banking and financial services area and is
currently on the editorial board of several journals including the Journal of Banking & Finance and The European
Journal of Finance.
Philip Molyneux is currently Professor of Banking and Finance and Dean of the College of Business, Law,
Education and Social Science at Bangor University, North Wales, UK. He has published widely in the banking www.pearson-books.com
and financial services area, including articles in the Journal of Banking & Finance, Review of Finance and European Cover: © Rashevskyi Viacheslav/
Economic Review. Shutterstock
CVR_CASU8130_02_SE_CVR.indd 1 04/03/2015 11:53

Contents
List of figures xiii

List of tables xvii
List of boxes xx
Preface xxiii
Acknowledgements xviii
List of abbreviations and acronyms xxxv
Part 1 Introduction to banking
1 What is special about banks? 3

1.1 Introduction 3
1.2 The nature of financial intermediation 3
1.3 The role of banks 7
1.4 Information economies 8
1.5 Why do banks exist? Theories of financial intermediation 14
1.6 The benefits of financial intermediation 16
1.7 Conclusion 17
Key terms 18
Key reading 18
Revision questions and problems 19
2 Bank activities and services 20

2.1 Introduction 20
2.2 What do banks do? 20
2.3 Banks and other financial institutions 21
2.4 Banking services 25
2.5 Sustainable and ethical banking: a brief overview 42
2.6 Conclusion 45
Key terms 46
Key reading 46
3 Types of banking 47
3.1 Introduction 47
3.2 Traditional versus modern banking 48
3.3 Retail or personal banking 53
3.4 Private banking 59
3.5 Corporate banking 61
3.6 Investment banking 72
3.7 Islamic banking 78
vii
A01_CASU8130_02_SE_FM.indd 7 03/03/15 7:23 pm

Contents
3.8 Conclusion 81
Key terms 81
Key reading 82
4 International banking 83
4.1 Introduction 83
4.2 What is international banking? 83
4.3 Brief history of international banking 86
4.4 Why do banks go overseas? 87
4.5 Types of bank entry into foreign markets 94
4.6 International banking services 99
4.7 Conclusion 112
Key terms 113
Key reading 114
Appendix 4.1 Syndicated lending: a selected glossary 115
Part 2 Central banking and bank regulation
5 Theory of central banking 121

5.1 Introduction 121
5.2 What are the main functions of a central bank? 122
5.3 How does monetary policy work? 123
5.4 Monetary policy functions of a central bank 127
5.5 Why do banks need a central bank? 145
5.6 Should central banks be independent? 149
5.7 Conclusion 151
Key terms 152
Key reading 152
6 Central banks in practice 154

6.2 The Bank of England 154
6.3 The European Central Bank (ECB) 168
6.4 The Federal Reserve System 178
6.5 Conclusion 186
Key terms 187
Key reading 188
7 Bank regulation and supervision 189

7.2 The rationale for regulation 190
7.3 Types of regulation 191
7.4 The financial safety net 192
viii

Contents
7.5 Limitations of regulation 202

7.6 Causes of regulatory reform 205
7.7 Bank capital regulation 206
7.8 Conclusion 225
Key terms 225
Key reading 225
8 Bank failures and banking crises 227

8.2 The determinants of bank failure 228
8.3 Early warning systems for bank soundness 233
8.4 Bank restructuring 239
8.5 Banking crises 246
8.6 Conclusion 255
Key terms 255
Key reading 255
Part 3 Issues in bank management
9 Banks’ balance sheet and income structure 259

9.2 Retail banks’ balance sheet structure 260
9.3 Investment banks’ financial statements 274
9.4 Bank performance and financial ratio analysis 279
9.5 Conclusion 294
Key terms 294
Key reading 294
10 Bank financial management 296

10.2 Asset–liability management (ALM) 297
10.3 Liquidity management and the importance of reserves 302
10.4 Capital adequacy management 303
10.5 Off-balance-sheet (OBS) business in banking 303
10.6 Loan sales and the process of securitisation 307
10.7 Derivative business in banking 310
10.8 Conclusion 327
Key terms 327
Key reading 328
11 Banking risks 329

11.2 Credit risk 329
ix

Contents
11.3 Interest rate risk 332

11.4 Liquidity (or funding) risk 336
11.5 Foreign exchange risk 339
11.6 Market (or trading) risk 342
11.7 Country and sovereign risk 344
11.8 Operational risk 346
11.9 Off-balance-sheet risk 346
11.10 Other risks 347
11.11 Capital risk and solvency 348
11.12 Interrelation of risks 349
11.13 Conclusion 350
Key terms 351
Key reading 351
12 Bank risk management 352

12.2 General risk management 353
12.3 Credit risk management 359
12.4 Managing the lending function 362
12.5 Managing interest rate risk 369
12.6 Managing liquidity risk 376
12.7 Managing market risk 378
12.8 Managing operational risk 384
12.9 International risk assessment 388
12.10 Conclusion 395
Key terms 395
Key reading 396
Part 4 Comparative banking markets
13 Banking in the UK 399

13.2 The crisis in UK banking 400
13.3 Regulatory reforms and the changing face of UK banking 409
13.4 The structure of the UK banking sector 417
13.5 Financial structure of the UK banking sector 422
13.6 Balance sheet features and the performance of UK banks 427
13.7 The UK payment system 431
13.8 Competition in UK banking 433
13.9 Conclusion 438
Key terms 438
Key reading 439
Appendix 13.1 Demutualisation of the UK building society sector 440

Contents
14 Banking in Europe 441

14.2 The European Union 442
14.3 The Single European Market for financial services 446
14.4 Building a new EU financial architecture 454
14.5 Structural features and the consolidation trend 474
14.6 Balance sheet structure and performance in European banking 484
14.7 Conclusion 489
Key terms 489
Key reading 490
15 Banking in the US 491

15.2 The financial crisis in the US 492
15.3 Structure of the US banking and financial systems 499
15.4 US payments systems 507
15.5 Balance sheet features of US commercial banks 510
15.6 Performance of US commercial banks 510
15.7 Regulation of the US banking system 515
15.8 Conclusion 524
Key terms 525
Key reading 525
16 Banking in Japan 527

16.2 Structure of the banking system 528
16.3 Payment systems 538
16.4 Banking crises in Japan 542
16.5 Changing structure of the financial system 545
16.6 Conclusion 552
Key terms 553
Key reading 553
17 Banking in emerging markets 554

17.2 Benchmarking financial development 555
17.3 Finance and growth 560
17.4 The macroeconomic outlook 564
17.5 Structural features and trends 570
17.6 Conclusion 585
Key terms 586
Key reading 586
xi

Contents
Part 5 Advanced topics in banking
18 Banks and markets 589

18.2 Bank intermediation, markets and information 590
18.3 The development of the securitisation market 593
18.4 Modern securitisation process 598
18.5 The ‘new wave’ of securitisation 604
18.6 Types of securitisation 606
18.7 Securitisation, credit-rating agencies and monoline insurers 607
18.8 The future of securitisation 611
18.9 Conclusion 614
Key terms 614
Key reading 615
19 Mergers and acquisitions 616

19.2 Mergers and acquisitions: definitions and types 617
19.3 Recent trends in bank M&As 621
19.4 M&A and bank performance 629
19.5 Managerial motives for M&As 632
19.6 The impact of M&As on bank customers 633
19.7 M&As and bank diversification 634
19.8 The exploitation of safety-net subsidies and systemic risk 637
19.9 Conclusion 642
Key terms 642
Key reading 642
20 Bank competition and financial stability 644

20.2 Structure-conduct-performance (SCP) 645
20.3 Non-structural measures of banking sector competition 653
20.4 Comparing competition measures – are they consistent? 660
20.5 Competition and risk in banking 662
20.6 Bank competition and stability 664
20.7 Conclusion 667
Key terms 667
Key reading 668
Appendix A1 Interest rates, bonds and yields 669

Appendix A2 Introduction to portfolio theory 679
Glossary 689
References and further reading 725
Index 749
xii

List of figures
1.1 The intermediation function 4

1.2 Direct finance 4
1.3 Direct and indirect finance 6
1.4 Modern financial intermediation 6
1.5 Adverse selection in loan pricing 11
2.1 Classification of financial intermediaries in the UK 23
2.2 Cheque volumes in the UK (trend 2003–2012) 29
2.3 Mobile-money users in Africa 32
2.4 Market price of Bitcoin 34
2.5 Typical current account usage 35
2.6 A definition of e-banking 39
2.7 Evolving role of the branch in a multi-channel environment, 1980–2011 41
2.8 Positive customer experience of channels vs. channel importance
by region, 2012 42
3.1 Life insurance distribution channels 2010 (gross written premiums) 51
3.2 Bancassurance models 52
3.3 Structure of balance sheet and P&L of Bank of America (2012) 55
3.4 HNWI population (2007–2011) 60
3.5 CHAPS monthly volumes and values (2012–2013) 63
3.6 Global Islamic banking assets, 2009–2013 80
4.1 Local currency claims as a share of foreign claims 85
4.2 The product life cycle 91
4.3 Branches and subsidiaries: geographical distribution, 2008 98
4.4 Branches and subsidiaries: selected financial centres, 2008 98
4.5 Bond features 101
4.6 Syndicated lending – basic structure 105
4.7 Club deals and loan issuance by the top five arrangers (in $bn) 107
4.8 Syndicated loans and bond issuance by credit rating (in $bn) 110
4.9 Gross syndicated loan issuance (in $bn) 111
4.10 Syndicated loans and corporate bonds spreads 112
5.1 Weight of central bank objectives in central bank laws 123
5.2 Monetary policy instruments, targets and goals 129
5.3 Open market operations 132
5.4 Discount window 133
5.5 Bank of England operational standing facilities 134
5.6 Reserve requirements 136
5.7 The key issues in monetary policy transmission 139
5.8 Channels of monetary policy transmission 139
5.9 Transmission lags of monetary policy 140
5.10 Total assets/liabilities expansion and securities programme
of the BoE, Fed and ECB 145
6.1 The new UK regulatory framework 157
xiii

List of figures
6.2 Statutory decision-making bodies of the Bank of England 157

6.3 The new UK financial regulation architecture 159
6.4 Inflation targeting 161
6.5 UK CPI inflation, 1972–2012 162
6.6 Cumulative net asset purchases by type (amounts outstanding), 2009–2013 166
6.7 The decision-making bodies of the ECB 169
6.8 Inflation in the euro area (%), 1990–2014 171
6.9 Trends in the key ECB interest rates, 1999–2010 172
6.10 The stability-oriented monetary policy strategy of the ECB 174
7.1 Elements of the financial safety net 192
7.2 Cross-country comparison of coverage levels at end-2010 (absolute
level and per capita GDP) 195
7.3 Measures of bank capital 210
7.4 Basel II: the three pillars 213
7.5 Elements of the capital ratio affected by Basel III 217
7.6 Basel III: enhancing the three-pillar approach 217
8.1 Bank NPLs to total loans ratio (%) 231
8.2 Average and distribution of CAMELS ratings, 1990–2011 236
8.3 Percentage of strong and weak banks, 1990–2011 236
8.4 The growth of domestic and international stress testing regulations 237
8.5 Banking crises 247
9.1 Breakdown of UK banks’ sterling deposits, end-year 2012 264
9.2 Barclays Bank assets, end-year 2012 (£mil) 266
9.3 Barclays Bank liabilities, end-year 2012 (£mil) 267
9.4 Balance sheet of a manufacturing firm vs. a bank 271
9.5 Asset and liability composition of Goldman Sachs, 2012 277
9.6 Goldman Sachs: sources of revenue, 2012 278
9.7 Goldman Sachs: net revenues by geographic regions, 2012 278
9.8 Goldman Sachs: non-interest expenses, 2012 279
9.9 Goldman Sachs: breakdown of costs, 2012 279
9.10 Who is interested in bank performance? 280
9.11 The ROE decomposition 283
9.12 Value destruction in European banking 287
10.1 Forms of asset management versus liability management 298
10.2 Goals of ALM and liquidity management 298
10.3 Body with primary oversight over balance sheet management
(panel a) and ALM unit reporting line (panel b) 300
10.4 Profit centres and the FTP process 301
10.5 Simple example of a letter of credit 305
10.6 Securities underwriting syndicate 306
10.7 A default swap 312
10.8 A total-rate-of-return swap 313
10.9 A credit-spread put option 313
10.10 Global OTC derivatives market 315
10.11 Payoffs and profits on call options at expiration (from the perspective
of the buyer of the option) 322
10.12 Payoffs and profits on put options at expiration (from the perspective
of the buyer of the option) 322
11.1 Refinancing risk 336
xiv

List of figures
11.2 Reinvestment risk 336

11.3 The foreign asset and liability position of a Spanish bank: a net long
asset position in US$ 342
11.4 Banking vs. trading books 344
11.5 Interaction between rogue trading and market risks: impact on losses 350
12.1 Corporate governance in banking 359
12.2 Home repossessions in the UK, 1982–2011 365
12.3 Probability distribution of portfolio losses 369
12.4 Rate-sensitivity and positive gap 370
12.5 Strategic matrix for profit maximisation 372
12.6 Basel and liquidity risk timeline 378
12.7 Back testing VaR (UBS), 2 January 2012 to 31 December 2012 384
12.8 The three lines of defence for sound operational risk management 386
13.1 Northern Rock balance sheet growth and liability structure,
June 1998–June 2007 401
13.2 Northern Rock: from nationalisation to sale 403
13.3 RBS capitalisation 407
13.4 Outstanding guarantees to the UK banking sector, 2010–2013 409
13.5 The new ICE LIBOR arrangements 413
13.6 Number of banks and building societies, 1985–2013 417
13.7 Number of branches and ATMs, 1985–2012 420
13.8 Employment in the UK banking sector, 1990–2012 422
13.9 Number of staff: major UK banks, 1998–2012 423
13.10 All banks in the UK: asset structure, 1985–2012 424
13.11 All banks in the UK: liability structure, 1985–2012 424
13.12 MBBGs’ sterling lending to UK residents, 1985–2012 425
13.13 Net lending for consumer credit, 1985–2012 426
13.14 Net mortgage lending, 1985–2012 427
13.15 Income of major British banking groups, 1985–2012 (% of gross income) 428
13.16 Costs of MBBGs, 1985–2012 (% of gross income) 429
13.17 Profits of MBBGs, 1985–2012 (% of gross income) 431
13.18 Share of top four banks’ assets, 1985–2012 434
14.1 The Lamfalussy process 452
14.2 Interest rates, loans to non-financial corporates 453
14.3 The three crises in the eurozone 455
14.4 Proposals for EU financial supervision – de Larosière Report 463
14.5 The European System of Financial Supervision 465
14.6 The Banking Union 466
14.7 The Single Supervisory Mechanism 468
14.8 Total assets of credit institutions in the euro area, 2013 475
14.9 Number of MFIs in the EU and euro area, 1999–2014 477
14.10 Number of MFIs (by country and category), January 2014 477
14.11 Size of selected EU banks, 2012 (assets in €bn and as % of national GDP) 482
14.12 Funding base stability ratio and interbank market dependency
ratio, 2008–2013 486
14.13 Non-performing loans and provisions 488
14.14 Tier 1 capital ratio 488
15.1 US mortgage-related issuance 494
15.2 TARP funds outstanding 497
xv

List of figures
15.3 Number of commercial banks and branches in the US, (1935–2013) 500
15.4 Share of industry assets according to bank size, 1984–2013 501
15.5 Performance of US commercial banks – return on equity, 1990–2013 513
15.6 Performance of US commercial banks – return on assets, 1990–2013 513
16.1 The structure of the Japanese banking sector 529
16.2 Total assets of Japanese domestic banking groups (in trillions of yen) 532
16.3 Structure of the Co-operative system 534
16.4 Changes to the structure of the Japan Post Group 537
16.5 Japan Post Bank deposit base 538
16.6 The payment systems in Japan 540
16.7 Banknotes and coins in circulation (to nominal GDP), 2008–2012 542
16.8 The performance of Japanese banks, 2009–2013 548
16.9 Capitalisation of Japanese banks 549
16.10 Japanese banks’ non-performing loans and loan losses, 2002–2013 552
17.1 The uneven sizes of financial systems 559
17.2 Banking and economic growth 564
17.3 Economic growth in advanced and emerging economies 570
17.4 Trends in government ownership of banks 576
17.5 Government ownership across developing regions, 1970–2009 576
17.6 Foreign bank presence, 2009 582
18.1 How the US mortgage market works 596
18.2 Securitisation rates by type of mortgage, 2001 and 2006 597
18.3 Creation of an ABS security: participants and functions 599
18.4 Capital structure and prioritisation 603
18.5 Example of tranching and credit enhancement 604
18.6 US asset-backed securities issuance ($mil), 1985–2012 611
18.7 Global CDO issuance ($mil), 2000–2011 612
19.1 Bank M&As in Europe and the US (value of transactions $bn), 1985–2006 621
19.2 JPMorgan’s US acquisitions 623
19.3 Bank M&As in the US, 2007–2013 624
19.4 EU bank M&As: number and value of transactions, 2000–2012 626
19.5 Most attractive areas for geographic expansion via M&A 628
19.6 Banks diversify and multiply, 1998–2008 635
20.1 The structure-conduct-performance (SCP) paradigm 647
20.2 Herfindahl index: equity derivatives, bank to non-bank 650
20.3 Concentration levels in UK retail banking (measured by HHI) 652
A1.1 Normal yield curve 677
A1.2 UK government yield curve 677
A2.1 Efficient (mean-standard deviation) frontier 683
A2.2 Efficient frontier: two risky assets (securities 1 and 2) 684
A2.3 Systematic and unsystematic risk: effects of diversification 684
A2.4 Security market line 686
xvi

List of tables
2.1 A simplified bank balance sheet 21

2.2 The case of a single bank under a 10 per cent reserve ratio (£mil) 22
2.3 The banking system under a 10 per cent reserve ratio (£,000) 23
2.4 Use of payment instruments by non-banks: number of transactions
per payment instrument (millions, total for the year) 26
2.5 Number of plastic cards (000s) 27
2.6 Key advantages and disadvantages of Bitcoin 34
3.1 Traditional versus modern banking 49
3.2 Non-life and life insurance distribution through the bancassurance
channel outside Europe in 2010 (%) 52
3.3 Top 15 commercial banks (December 2012) 54
3.4 Credit unions in the world, 2005–2010 (% changes) 58
3.5 Top 20 global private banks by assets under management 61
3.6 The end of an era for US investment banks 73
3.7 Largest investment banks by revenue (2012) 75
3.8 The changing face of investment banking (September 2008
to September 2012) 76
4.1 Type of entry in foreign markets 97
4.2 Letters of credit 104
4.3 Credit risk ratings – Moody’s and Standard & Poor’s 109
5.1 Definitions of euro area monetary aggregates 126
5.2 A simplified central bank balance sheet 130
5.3 Eurosystem monetary policy operation 135
5.4 Pros and cons of discretion vs. fixed rules in monetary policy 141
5.5 UK and US asset purchase programmes (in figures) 144
5.6 Central bank independence (CBI) 151
7.1 DIS cross-country comparison 198
7.2 Bank resolution authorities: a cross-country comparison 200
7.3 Bank regulation: key concepts 204
7.4 Rationale for Basel II: more flexibility and risk sensitivity 213
7.5 Calibration of the capital framework 219
7.6 Basel III phase-in arrangements – capital 219
7.7 Basel III phase-in arrangements – liquidity 220
7.8 G-SIBs and additional capital requirements 224
8.1 CAMELS rating 235
8.2 Bank resolution terminology 240
8.3 Bank resolution methods 244
8.4 Regulatory initiatives 245
8.5 The costs of banking crises 248
8.6 Comparing the costs of the Asian and global crises 249
9.1 Simplified commercial bank balance sheet 260
xvii

List of tables
9.2 Bank of England aggregate assets of UK banks (end-year 2012,

£bn amounts) 262
9.3 Bank of England aggregate liabilities of UK banks (end-year 2012,
£bn amounts) 265
9.4 Barclays Bank assets, 2008–2012 (£mil) 266
9.5 Barclays Bank liabilities, 2008–2012 (£mil) 268
9.6 Banks vs. manufacturing firms – balance sheet composition 270
9.7 A simplified bank income statement 272
9.8 Barclays Bank Plc profit and loss account 2008–2012 (£mil) 273
9.9 A simplified investment bank balance sheet 275
9.10 Top Australian banks’ performance at a glance (2012) 285
9.11 Selected ratios for three former large US investment banks (%) 285
9.12 ‘Standard’ cost of equity capital for NatWest and RBS 291
9.13 ‘Standard’ cost of equity capital for selected US and EU banks 291
9.14 An illustration of the trade-off between solvency and profitability 293
10.1 Profit centres and the FTP process: a simple example 301
10.2 Simplified bank balance sheet before and after loan sales (in £mil) 308
10.3 Simplified bank balance sheet before and after securitisation (in £mil) 310
10.4 Eurodollar interest rate futures 317
10.5 Example of long hedge using Eurodollar futures 318
10.6 Fixed–floating rate currency swap (millions) 326
11.1 Selected sovereign foreign currency ratings 345
11.2 Operational risk event types 347
12.1 Selected definitions of risk culture 355
12.2 Mortgages outstanding, arrears and repossessions 1994–2012 365
12.3 Maturity bucket gap (£mil) 371
12.4 The trading book review 379
12.5 Value at risk at UBS 382
12.6 Example of OECD country risk classification of the participants
to the arrangement on officially supported export credits
(as of 31 January 2014) 394
13.1 Government support to UK banks, 2007–2012 405
13.2 Number of banks in the United Kingdom, 1995–2013 418
13.3 Impairment charges, 2006–2012 (£mil) 428
13.4 Calculating MBBG profits (£bn) 430
13.5 Mergers and acquisitions in UK banking 434
14.1 The European Union: a timeline 443
14.2 Macroeconomic outlook 444
14.3 Euro area member states 448
14.4 Regulatory measures affecting the EU banking and financial sectors 448
14.5 Obstacles to full integration of EU financial retail markets 453
14.6 The development of Dexia’s balance sheet and income (in €bn) 458
14.7 Financial assistance facilities for euro area countries 462
14.8 Towards a Banking Union: timeline and milestones 464
14.9 Number of credit institutions in the euro area, 1995–2013 476
14.10 Number of MFIs by country and percentage change 478
14.11 Euro area indicators of banking sector capacity, 2012 479
14.12 Number and total assets of foreign branches and subsidiaries
in the euro area, 2012 481
xviii

List of tables
14.13 Five-firm concentration ratio as percentage of total banking sector assets and
Herfindahl index 483
14.14 Selected balance sheet items (€bn and as a percentage of total assets), 2013 485
14.15 Selected income statement items (EU banks) 487
15.1 Sub-prime home purchase loans (%) 494
15.2 Ten largest US banking companies, ranked by assets ($mil) 502
15.3 Leading US property and casualty insurance companies, 2012 504
15.4 Leading US life insurance companies, 2012 504
15.5 US financial intermediaries (market share, total assets) 507
15.6 Number of non-cash payments ($bn), 2000–2012 509
15.7 Assets of US commercial banks, 1990 to 2012 ($mil) 511
15.8 Liabilities and equity capital of US commercial banks, 1990–2010 ($mil) 512
15.9 Bank profitability by state – return on assets (%) 514
15.10 US financial regulators 516
15.11 Supervisors and regulators of US banks 519
16.1 Licensed financial institutions in Japan (as of December 2012) 530
16.2 Total deposits and number of branches by bank type (as of March 2012) 533
16.3 Payment system statistics: number and value of transactions 541
16.4 Japan’s 1998 banking crisis – major events 544
16.5 Financial assets of Japan by sectors, 2012 (trillion yen) 545
16.6 Regulation and supervision by bank type 547
16.7 Balance sheet, March 2012 (values in million yen) 550
16.8 Income statement, March 2012 (values in million yen) 551
17.1 The World Bank’s ‘432 matrix of financial system characteristics’ 557
17.2 Financial institution characteristics by country, 2008–2010 average 559
17.3 Finance and growth: a review of the literature 562
17.4 Emerging economies – geographical region 565
17.5 Emerging economies – income classification by Gross National
Income (GNI) per capita 566
17.6 Real GDP growth (%) – emerging economies 569
17.7 Banking in Asia 571
17.8 Banking in transition economies 572
17.9 Number of banks by host country, aggregates by income level and regions 583
17.10 Foreign ownership limits in South East Asian banking 585
19.1 Motives for bank M&As 620
19.2 Major US bank M&As since 2000 622
19.3 European bank M&As, 2007–2013 625
20.1 Bank size and concentration 648
20.2 H-statistics: interpretation 654
20.3 Panzar–Rosse H-statistic 656
20.4 Interpretation of the CV parameter (l) 657
20.5 Lerner index – banks in Asia Pacific (average figures, 2003–2010) 658
20.6 Competition measures for selected EU countries (average values, 2000–2009) 661
20.7 Correlation matrix for the competition measures 661
20.8 Empirical evidence of the competition-stability relationship 665
A1.1 Reading the Financial Times: UK government bonds 675
A1.2 UK benchmark government bond yields – 13 May 2014 676
A2.1 Case 1: overall expected return on a security 680
A2.2 Expected return and beta 687
xix

List of boxes
2.1 How banks create money: the credit multiplier 22

2.2 Decision to abolish cheques reversed 29
2.3 Press 1 for modernity 32
2.4 Bitcoin: a new form of electronic money 33
2.5 Peer-to-peer (P2P) lending organisations 36
2.6 Case study: PPI misselling – ‘nothing was separated and explained’ 38
2.7 Positive and negative investment criteria 43
3.1 Bank of America 54
3.2 Germany’s small banks fight to keep privileges 56
3.3 UK credit easing 66
3.4 The end of an era: US investment banks and the conversion into BHCs 73
3.5 Wall street: leaner and meaner 76
3.6 Lloyds TSB’s Islamic mortgage product 79
4.1 From international to multinational banking? 84
4.2 Some definitions 85
4.3 Trade barriers and banking 88
4.4 Canadian Imperial Bank of Commerce (CIBC) correspondent banking services 95
5.1 The concept and functions of money and monetary aggregates 124
5.2 Monetary policy objectives 127
5.3 Balance sheet, Bank of England (2012) 131
5.4 Bank of England and the official interest rate 133
5.5 Monetary policy: transmission mechanism, fixed rules and discretion 139
5.6 Quantitative easing in Japan 143
5.7 Relationship between liquidity and solvency 147
5.8 Who owns the Central Bank? 150
6.1 The Bank of England – more than 300 years of history 155
6.2 Inflation targeting in the United Kingdom 160
6.3 Emergency liquidity assistance to HBOS and RBS 164
6.4 Leaving the Old Lady 166
6.5 The ECB’s non-standard measures of monetary policy 175
6.6 Efficacy and costs of large-scale asset purchases 184
7.1 Core principles for effective deposit insurance systems 194
7.2 Moral hazard and government safety-net arrangements 203
7.3 Details of capital elements (established 1988 and applied in 1992) 209
7.4 RAR (risk–asset ratio) approach 210
7.5 Five capital-adequacy categories of banks 212
7.6 Pillar 1 214
7.7 NSFR implementation uncertain after Basel III compromise
on LCR phase-in 221
8.1 Rogue traders and bank losses 229
8.2 The European Banking Authority and EU-wide stress tests 238
8.3 Aims of an effective bank resolution regime 242
xx

List of boxes
8.4 The Icelandic meltdown 250

8.5 Mexican banks: from tequila crisis to sunrise 253
9.1 Assets and liabilities valuation in banking 268
9.2 Typical capital structure of a manufacturing firm versus a retail bank 270
9.3 Goldman Sachs’ financial statements (2012) 277
9.4 What are key performance indicators (KPIs)? 281
9.5 The ROE decomposition 282
9.6 Sources of underperformance in European banking 286
9.7 Value maximisation for the banking firm 288
9.8 What is EVA? 289
9.9 Calculating the cost of equity capital 290
10.1 Asset–liability management in practice 299
10.2 The ‘bank within the bank’ and the fund transfer pricing (FTP) process 300
10.3 The process of deconstruction of lending activity 307
10.4 Loan sales and modern banks’ strategies 309
10.5 Financial derivatives from off to on the balance sheet 311
10.6 How can credit derivatives be used in bank financial management? 312
10.7 Derivative products: official exchanges and OTC markets 314
10.8 Example of three-month Eurodollar time deposit futures 316
10.9 Example of forward rate agreement 320
10.10 Option contracts: payoff and profit profiles 321
10.11 Example of interest rate swap 325
10.12 Example of fixed–floating currency swap 326
11.1 Credit culture and equity culture in banking 331
11.2 Watch out for the rate hike hit to banks 334
11.3 Liquidity risk and information asymmetries 337
11.4 What caused China’s cash crunch? 338
11.5 Exchange rates and foreign exchange markets: what is an exchange rate? 340
11.6 Reforming the boundaries between banking book and trading book:
a new Basel IV? 343
11.7 Interactions between market risk and rogue trader risk 350
12.1 The corporate governance of banks 356
12.2 Mortgage market, equity withdrawal and negative equity 364
12.3 Credit scoring: how to score high 367
12.4 Example of Macaulay duration 374
12.5 Example of duration gap 375
12.6 Example of VaR 381
12.7 Risk management progress has been small, says banking study 385
12.8 Structure of the internal measurement approach 388
12.9 Factors affecting country risk 391
12.10 OECD country risk-weighting calculations 393
13.1 The failure and resolution of northern rock 401
13.2 Why did RBS fail? 406
13.3 LIBOR fixing 411
13.4 Just the facts: the Vickers report 414
13.5 A brief history of TSB 421
13.6 Components of bank profits 429
13.7 RBS technology breakdown 432
14.1 Europe 2020 in a nutshell 445
xxi

List of boxes
14.2 The creation of a single market for financial services in the European Union 446
14.3 The Lamfalussy process 451
14.4 The failure of cross-border banks: the case of Fortis and Dexia 457
14.5 European system of financial supervision (ESFs) 465
14.6 EU reaches deal on final piece of banking union 470
14.7 EU agrees deposit guarantee scheme deal 473
15.1 US mortgage basics 492
15.2 Key events in the US credit crisis 495
15.3 Volcker rule comes of age in spite of protests 521
15.4 Failures of the Dodd–Frank Act 523
16.1 Japan scales back Japan Post privatisation 536
16.2 Japan’s biggest banks profit under Abenomics 548
17.1 China banking war heats up with launch of online investment app 574
17.2 Two views on the role of state banks 578
17.3 Scope for consolidation in overcrowded Gulf banking markets 580
18.1 A history of Freddie Mac and Fannie Mae 595
18.2 What is credit enhancement? 601
18.3 CDS: modern-day weapons of mass destruction 608
18.4 AIG saga shows dangers of credit default swaps 610
19.1 The emergence of financial conglomerates 618
19.2 Santander in talks to sell stake in asset arm 624
19.3 Consolidation: fragmented business offers huge potential for mergers 627
19.4 How to perform an event study 630
19.5 A winner’s curse that haunts the banking behemoths 631
19.6 Bank diversification 635
19.7 Out to break the banks 638
20.1 Competition in UK banking 651
xxii

Preface
It is well enough that people of the nation do not understand our banking and monetary
system, for if they did, I believe there would be a revolution before tomorrow morning.
Henry Ford
The aim of this textbook is to provide a comprehensive introduction to theoretical and applied
issues relating to the global banking industry. Despite the fears of Henry Ford, we do not
think reading this book will cause a revolution, but we do hope it will at least provide you
with an enjoyable and interesting insight into the business of banking.
A major motivation for writing this text has been to fill a gap in the market. For a number of
years we have all taught banking courses and we have become aware of students’ frustration
about the lack of a comprehensive yet accessible textbook that deals with a broad spectrum
of introductory banking issues. Most introductory texts that cover banking issues tend to be
broad-based, focusing on economics and finance, and these (in our view) do not provide
sufficient detail or coverage of the theoretical and institutional detail that is essential for an
accurate understanding of critical banking issues. While there are textbooks that provide
such coverage targeted at advanced undergraduates and the postgraduate market, there is
no text that has comprehensive coverage of such issues for those new to the study of banking.
In addition, many textbooks that cover banking as part of a broadly based money and bank-
ing course tend to give only limited attention to international experiences. As such, we have
written this text to provide (we hope) an essential teaching and learning resource for anyone
who has to lecture introductory undergraduates as well as for professional banking courses.
The first edition of this book (2006) described a world where the banking industry expe-
rienced marked changes and deregulation allowed banking firms to diversify into broader
financial services areas. Commercial banks became full-service financial firms, offering a
range of non-traditional financial services including insurance, securities business, pensions
and the like. Many banks dropped the word ‘Bank’ from their titles to emphasise their much
broader role in the provision of financial services to households and corporations. In addi-
tion, various trends such as industry consolidation, securitisation and disintermediation were
having a significant effect, resulting in a smaller number of major players operating in credit,
capital and money markets business that increasingly overlapped. As banking systems opened
up, many institutions were pursuing international strategies, thereby changing the tradi-
tional focus on banking as a mainly domestic business. This rapidly evolving environment
posed both threats and opportunities to bank managers and owners. The former had to be
increasingly aware of both domestic and international developments in the management pro-
cess, and in particular of the various risk–return trade-offs in all areas of a bank’s activities.
Capital needed to be managed effectively to adhere to minimum regulatory requirements
and also to generate returns in excess of the cost of capital to boost shareholders’ returns.
The market pressure on banks to generate good returns for shareholders was a key element
of bank strategy – bankers were forced to cut costs, boost revenues (mainly through fee and
commission income sources) and manage their capital resources much more efficiently.
xxiii

Preface
This golden era of banking came to an abrupt end in the summer of 2007, when the demise
of the US sub-prime mortgage lending market led to financial losses, government bailouts
of banks (and other financial institutions), a credit crunch and a prolonged economic reces-
sion, mainly in developed countries, ensued. Since the onset of the crisis in 2007, there has
been a large body of research investigating its causes and consequences. What had started as
trouble in a small segment of the US financial markets became a fully fledged global financial
crisis, following the demise of the US investment bank Lehman Brothers in September 2008.
The unfolding of the sub-prime crisis and how it became a financial crisis, and its impact on
European countries in the form of a sovereign debt crisis, can be described in various phases
or waves that include (i) the US sub-prime crisis (August 2007 to September 2008); (ii) the
systemic or global crisis (September 2008 to March 2009); (iii) the economic crisis (March
2009 to January 2010); and (iv) the sovereign debt crisis (January 2010 to June 2012). In
this textbook, we will refer to the sub-prime crisis period as the 2007 crisis, to the global
financial crisis period as the 2008–2009 crisis and to the sovereign debt crisis or eurozone
crisis as the period 2010–2012. Because of the timing of different events, the period of finan-
cial market turbulence is also indicated as the 2007–2009 financial turmoil.
These crisis years have had a tremendous impact on the world of banking and have
brought about dramatic changes in the global financial architecture. Against this background
of global changes, the need to revise the book became apparent. As the dust has begun to
settle on the crisis periods and the new shape of the world’s banking markets has started to
take form, we have thoroughly revised this textbook to account for all these recent changes.
The text is organised into five main parts:
● Part 1 Introduction to banking

– Chapter 1 What is special about banks?
– Chapter 2 Bank activities and services
– Chapter 3 Types of banking
– Chapter 4 International banking
This part of the text provides an introduction to the nature of financial intermediation
and covers the main reasons why banks exist, focusing on key issues such as adverse selec-
tion, moral hazard and delegated monitoring. It also covers the information production,
liquidity transformation and consumption smoothing role of banks as well as various other
issues relating to the bank intermediation process. We then go on to give a detailed account
of the main activities and services provided by banks, changes in the payment systems and
the growing importance of ethical investments and sustainable banking strategies. As the
financial sector in many countries comprise a wide range of different types of banking firms,
these are then explained, covering commercial banks, mutual banks, investment banks, pri-
vate banks and different forms of banking activity such as universal versus specialist banking
and ‘interest-free’ Islamic banking. Given the increasing role of banks on the global scene,
the final chapter of this part (Chapter 4) looks at the main features of international banking,
highlighting the reasons why banks locate overseas or conduct international activity. We also
outline the main services provided by international banks, covering payments, credit, money
and capital markets activity and highlighting the role of the Euromarkets – Eurobonds and
Eurocurrency activity – and also syndicated lending.
The main aim of Part 1 is to familiarise students with the reasons why banks exist, the main
services they offer, recent trends impacting on business areas, types of banking firms and the
xxiv

Another random document with
no related content on Scribd:
appearance in a mirror, she saw that she resembled a well-dressed
youth of the nobler class of Medes, but one whose face was far too
beautiful and feminine to pass for that of a man. Taking from a
cabinet a box of unguents and powders, she skillfully deepened the
color of her eyebrows and darkened her complexion, until she
resembled a young Mede of mixed Semitic and Aryan blood.
These preparations consumed much time. Darkness fell upon the
earth. Then a heavy knocking sounded upon the door of the
bedroom and a rough voice said: “May you live forever, O Great
Princess! I have a message from my royal Master, the King of
Kings!”
She made no answer and, after a moment, the voice continued:
“Once more does the King of Kings offer you peace and a place of
honor as his wife. Otherwise his sentence is that you have neither
food nor water until you submit to his royal will.”
Then Athura answered, “Tell your Lord and Master that I will take
until the morning to consider.”
“I am your slave!” responded the voice.
“Well, well!” exclaimed the King, when he received Athura’s
message. “Our proud-spirited sister may submit, since she sends me
back so mild an answer. It is well! The word of the King must prevail.
A day or two of solitude will not harm her. We shall yet be a happy
family!”
He laughed loud and long and drank deeply of soma. Artistone, who
sat with him at dinner, made no answer, but her eyes, red with
weeping, gave evidence of her woe.
As soon as darkness came fully over the palace, Athura went forth
cautiously upon the roof of the portico, descended to the ground by
means of her rope ladder, and stole away through the gloom among
the trees and shrubbery in the park. Knowing every path, every bush
and tree, it was not difficult for her to find a way and to avoid the
points where the guards sauntered listlessly to and fro, keeping
careless ward. The King had not remembered her avenue of escape,
or the guards were careless. She climbed over the stone walls
surrounding the park, with the aid of her rope ladder, and, making a
détour to avoid the guards, walked rapidly and boldly into the city.
She went straight to a horse-market and roused a sleepy servant,
who, though at first disposed to grumble at so late a visitor, speedily
turned obsequious when a coin was pressed into his hand. He
forthwith brought out one of the dealers in horses.
“A pretty time to come buying horses!” grumbled the latter, yawning
and stretching his limbs. “Think you, my young sprig, that I work day
and night?”
“Peace, grumbler!” retorted Athura, speaking hoarsely. “If I come to
buy a Nicæan steed by lamplight, what is that to you, seeing that I
have the coin? I must go on a journey to-night many miles to the
northward and need to hire a horse. But lest you deem me a robber,
I will deposit the full price of the animal, to be returned when I return
the horse. One condition only I exact—he must have speed and go
comfortably without fright or stumble. Fool me in this and I will bring
down the wrath of a mighty man upon you! Have you a good horse?”
“Have I a good horse? I keep nothing else, young sir! Come to the
stalls!”
He led the way with alacrity. He pointed to a large animal, saying,
“This one is good in bottom and long in legs. He will carry your
insignificant weight all night. Here is a Nicæan steed; but he is a
fierce animal and will not brook punishment of whip or spur. Speak
gently to him and he will carry you a week without rest. But he surely
is beyond your price!”
“What is his price? I doubt that he has such mettle as you think.”
“Fifty Lydian staters is his price. For riding him this night the price will
be one Lydian stater, if you return him to me to-morrow without
injury. Assuredly you may have a cheaper horse than this!”
“Extortioner! Twenty staters is more than a good price for that
animal. I will surely report you to the governor of the market. Think
you I know nothing of horses?”
The dealer spread out his hands and bowed as if in deep humility,
saying: “I perceive your worship is well acquainted with horseflesh.
Come, I will not haggle with you. Deposit your twenty staters in my
hand and take him. But you will surely pay an additional stater for a
fine saddle!”
“Verily you are an extortioner! But I will not haggle. One half-stater
and no more! Make haste, since my lady-love will not wait for my
coming too long!”
Athura took a handful of coins from a purse at her belt and counted it
into the outstretched palm of the greedy dealer, whose eyes sparkled
in triumph. The amount was a third more than the animal was worth.
The horse was brought out, saddled and bridled, champing his bits
and pawing the earth, impatient to be gone. Athura loved a good
horse. She was an accomplished rider. She sprang lightly into the
saddle and trotted away, shouting back at the dealer: “Farewell, son
of Ahriman! Keep the gold should I not return. I may go on to Rhages
before I come back.”
The dealer waved his hand in reply and said to his servant: “Young
sprig! Thought he knew the prices of animals! Bah! But then, he has
a good horse, even if he paid a stiff price. Who can he be? May the
dogs bite him if he try to return that animal! See that you be ready to
testify that this was a sale and not a letting. We shall not repurchase
the horse.”
“Yea, verily, Master, it was a sale,” answered the servant. Then they
retired to their couches well satisfied.
Athura cantered rapidly along the principal street of the city going
north. Night watchmen threw upon her the rays of their lanterns. She
passed a squad of soldiers in front of a public house, where, under
the influence of wine, they were singing and making merry. To their
gibes, she waved her hand, but declined their invitation to alight and
join them. She came to the outer boundaries of the city on the road
to Rhages. There the guards sat carelessly playing dice in their
shelter at the roadside. They heard the rapid hoof-beats of a horse
approaching from the city, but before they could come forth to
challenge, the horse with its rider flashed by at full speed. In a
second, the twain disappeared in a cloud of dust and darkness.
Grumbling that their ease should be thus broken, the guards
returned to their game. Had they known who had passed and that on
the morrow they would be flayed alive and quartered by an infuriated
King, they would not have been so careless. This was not their first
omission of duty, but it was the first in which the King was directly
concerned; and it was their last. They met their fate at sundown on
the morrow in the market-place after a short interrogation by the King
himself, as an exhibition to all men of the King’s justice upon those
who neglected duty.
It must be said of Cambyses that although to his own passions and
desires he gave loose rein and was brutal to those who interfered
therewith, yet to his subjects he was just, and was strict in the
enforcement of law. Because he regarded himself as the lawgiver, he
regarded a breach of the law as an insult to himself. He caused one
corrupt judge to be flayed alive in the market-place. Other evil-doers
were maimed or strangled. Not only did the guards of the road
whose orders compelled them to exact a pass of any one passing in
or out of the city after nightfall suffer, but several palace-guards
whose duty it was to watch the palace walls, were strangled with the
bowstring. His fury even threatened Prexaspes, but that astute
official was able to prove that he had gone on a mission to a
neighboring city and could not be involved in Athura’s sudden
disappearance. Spies soon learned of the flight of the steed and its
rider on the northern road. They found the horse-dealer, whose
description of the rider indicated that it was Athura in disguise who
had hired the horse. Bands of troopers were sent out on every road
and into the fields and mountains around the city. None knew except
the captains in charge of the bands for whom the search was being
made. It was reported generally that a robber had broken into the
palace and carried away some of the King’s jewels.
Athura rode northward for half an hour, then turning sharply to the
right and following a road which was little better than a path, but
which led to one of the King’s desert gardens, she came to a well-
beaten caravan-route leading southward towards what is now the
city of Isfahan. Taking this road, she followed it southward until she
entered a road branching southwestward to Adrapan, the winter
palace of Cyrus. By this circuitous way she hoped to deceive those
who might pursue into the belief that she was fleeing to Bactra by
way of Rhages. She did not dare take the road to Persia direct, but
planned to ride by way of Susa, or, perhaps, if her intention should
change upon reflection, she would flee to Damascus and thence to
her Prince at Sardis. As she rode, her active brain elaborated her
plans.
The night was cool and clear. The brilliant stars scintillated in the
autumn sky. A quarter-moon gave down a subdued light. A breeze
swept down from Mount Elwend, whose rugged heights lay darkly
against the western sky. The road to Adrapan followed the base of a
promontory of the Zagros range, which here jutted out into the plain.
Here and there near the highway were the cottages of gardeners,
who by irrigating their crops with the precious waters of Elwend,
caused the fertile soil to yield the vegetable supply for the capital
city. The odor of flowers and fruits permeated the air. The strong,
spirited horse, glorying in his strength and scarce feeling the weight
of his rider, galloped onward with long, even strides. No one
interrupted their progress. The cottagers, if partially aroused by the
rapid beat of hoofs and the barking of dogs, sleepily muttered, “A
King’s messenger!” turned over on their pallets, and again
slumbered.
Adrapan lay on the southern slopes of Mount Elwend. Here the
snows, which annually fell over Hamadan, seldom came; and, if they
did, the southern exposure to the sun caused them quickly to melt
away. To the right of the highway which passed westward through
the village was the palace, in a great park of noble trees. On the left
were several houses occupied by those who made their livelihood
trading with the thousands of nobles and retainers who honored the
King as his guests or served him as retainers. Here caravans from
Damascus and the west coming by way of Nineveh, or from the
south, coming by way of Babylon and Susa, stopped to enjoy the
salubrious climate and recuperate after enduring the hot districts
along the Tigris and the difficult roads across the Zagros Mountains.
At this time the palace and its park were in the care of keepers and
Adrapan was deserted, save by inn-keepers and traders.
Athura sighed as she came in sight of the village. She remembered
the pleasant days when, a child, she had wandered in the park with
her father, or played there with Bardya and the young Prince of Iran.
How long ago those days seemed! Her noble, erect, keen-eyed,
kind-hearted, and loving father; her joyous, laughter-loving, and
boisterous brother; and the tall youth, whose calm demeanor, royal
bearing, and worshipful eyes were ever in her mind—all appeared in
her memory. Tears came into her eyes, and her lips trembled with
emotion. She brought her panting steed to a stop within the deep
shadows of the trees and halted a moment to consider her course. If
she should pass through the village, she might be seen and
accosted. If she should enter the park, she would incur danger from
wild beasts which sometimes came down from the mountains.
Bears, wolves, a leopard, a tiger, and even a lion had been seen in
the park. She knew all the paths through the woodland and that, by
going a roundabout way, she might avoid the palace and the village,
but it would lead through wild, dark places. Though she had fear of
wild beasts, she feared more to be overtaken by the pursuers that
her brother might send after her. She decided to follow the dark
paths of the forest and defy the dangers from wild beasts. Turning
her horse, she plunged boldly into the woodland.
The turf deadened the hoof-beats of the horse. No sound was heard
save the cry of an owl, the song of a bulbul, and the chirp of insects.
Gathering the bridle reins in one hand, she drew the short sword
from its sheath at her belt with the other and carried it ready to meet
any danger that might assail her. Once she raised the sword high
towards heaven and prayed in a whisper, “Thou, Ahura-Mazda,
Good Spirit and Protector, send Sraosha, victorious leader of the
hosts of heaven, to guard me from Angro-mainyus and the Devas!”
She went slowly and warily. A dim light from the declining moon and
the stars enabled her to recognize the pathways. Her horse, tossing
his noble head and pricking forward his slender ears, followed the
paths with certain step, unafraid of the sounds of the night. If a bear
or wolf, sniffing the breeze on the heights above, became aware of
their presence, it did not descend to investigate, nor did any leopard,
tiger, or lion molest her. For an hour she slowly followed the devious
ways, but at length returned to the highway a parasang west of the
village. That she had acted wisely appeared on the following day,
when a squad of the King’s horsemen rode into Adrapan and made
inquiry. The villagers and the palace watchmen swore that no one
had passed through during the preceding night, although careful vigil
had been maintained on account of a report that a band of robbers
had been seen in the neighboring mountains.
On the highway again, horse and rider, somewhat rested by the
leisurely progress through the woodland, sped away westward at a
gallop. The highway was smooth for several miles, until it plunged
into the defiles of the Zagros Mountains, through which flowed the
headwater streams of the river Choaspes. Then it became more
difficult, with steep grades, crossing on stone bridges over deep
gorges, the beds of roaring streams, and winding about steep bluffs
and over sharp ridges. Morning found the fugitive many miles from
Hamadan in the midst of mountains; and her weariness and that of
her steed warned her that she must find a resting-place. Twice she
fruitlessly turned from the road to follow paths leading up narrow
canyons, hoping to find a suitable hiding-place. The third time she
followed a narrow pass leading into a small valley and there found a
sheepfold and a shepherd’s cabin. The shepherd and his flock were
in the hills, where the warm rays of the sun and the waters of many
springs kept the grass sweet and tender.
Finding the hut empty and no one near, Athura descended stiffly
from her horse and searched for food. She found a large jar of barley
in the hut and gave her horse a generous feed from it. Then, having
tied him to a tree, she searched the cabin for food that she might eat.
The long ride had made her tired and faint. Hunger reminded her
that she had eaten nothing since the previous noon. She opened
cupboards and chests and presently found a box in which the
shepherd had left a piece of roasted mutton and some round flat
cakes of bread, made of coarse barley flour. The fare satisfied her
hunger. Then she shut and barred the stout cabin-door and threw
herself upon a bundle of sheep-skins which lay on the floor, and
slept several hours. When the day was half gone, after another hasty
meal she went on her way.
The shepherd did not return till the shades of night were falling. His
surprise and indignation were great when he found that some one
had entered his cabin, eaten his bread and meat, and taken some of
his grain; but he was delighted when he found lying in the bread-box
a gold piece. He tried the coin with his teeth and excitedly turned it
over and over in his palm. Then he hid it safely in the earth at one
corner of his hut.
“Truly,” he muttered, “some god must have rested here, or a spirit of
the hills! But no, they would not eat my food. May luck go with this
patron of mine forever!”
It was after noon when Athura left the shepherd’s hut and rode out of
the canyon to the highway. She turned her face westward and rode
as rapidly as the steep grades and dangerous passes would permit,
anxiously scanning every reach ahead lest she meet a caravan, an
inquisitive traveler, or a band of robbers. Outlaws frequently attacked
caravans in those days and places, as they do yet. Travel except
with guards or in large companies was dangerous. Once as she rode
past the mouth of a canyon she observed several men sitting around
a camp-fire a hundred paces from the road. When they observed
her, they shouted and ran to their horses, which were grazing near
by them. She spoke to her horse and urged him to greater speed. He
responded nobly. The hiss of an arrow passed over her head. Her
horse, as if realizing the need of haste, fled with frightful speed.
Once she looked back and saw the pursuers; but, as they were
mounted on small mountain ponies, they were soon left far behind
and gave over the pursuit.
With an occasional halt at the crest of ridges over which the road
passed, the fugitive pressed onward till night fell. After stopping a
short time to allow the horse to graze and rest, she continued the
flight during the night hours. The brawling river along whose course
the way led filled the canyons with its murmur. The cry of night birds
and the howl of wolves sounded dismally from the heights. Once her
horse snorted and sprang away at a rapid pace from the shadow of a
clump of bushes. At another time he shook his head and dashed
madly at several dark, slinking forms in the road; these leaped aside
from his charge, snarling and chattering. It required all her will to
restrain the fear of unknown and unseen dangers of the darkness
and hills which gripped at her heart. She allowed her intelligent horse
to pick his own way, and he did not fail her.
At midnight she emerged from the mountain gorges and entered the
little plain of Bagistan, where she halted at the base of the
celebrated rock of Behistun. She recognized this great rock, on
which was engraved in huge letters the legend of Semiramis. As she
looked up at its bold, jagged skyline, she wondered whether the time
would ever come when she, like Semiramis, might stand there the
queen of the world. Years afterwards she did stand there as queen
of the world and watched the workmen of her husband erase the
story of Semiramis and carve thereon a short history of his own
exploits. She dismounted and, standing by the side of her horse,
leaned wearily against him and meditated what road to take. For
here was a parting of the ways. To her right, the road led to Nineveh,
Damascus, and Sardis, where she might find her Prince; to the left
lay the road to Susa and Persepolis. Should she go to the Prince of
Iran and thus plunge him into war with Cambyses, or should she
seek the protection of the lords of Persia? It was a grave question,
hard to solve, and she almost wept because of her own indecision.
“All hail and live forever, Princess Athura! Be not afraid!” A voice
came to her out of the darkness near the great rock.
Gasping with dismay, she sprang into the saddle and was about to
flee.
“Be not afraid!” said the voice again, and the tone was strangely
familiar and reassuring.
“Who speaks?” she demanded.
“Your servant, Belteshazzer, the Hebrew, gracious lady!”
The voice recalled the days when she sat at the feet of the great
teacher and listened to his wisdom.
“It must indeed be Belteshazzer!” she exclaimed, with a sigh of relief.
“None else could know me! Now Ahura-Mazda be praised! How
come you here?”
A tall form emerged from the darker shadows and drew near. “I came
up from Susa in obedience to the command of a spirit,” he said. “I
knew not why I was urged to come until I reached the shadow of this
great rock. Then I knew that I was sent to meet you here. In the spirit
I saw you coming. Do you remember the lessons in the west tower of
the palace at Hamadan, and how the Hebrew was not easy for you
to learn?”
She remembered well this wonderful man, whose wisdom was that
of a god, whose eyes read the very thoughts of men, and whose
heart was pure and kind. With a happy note in her voice she
answered: “Truly, Master, I am that unapt scholar in Hebrew! What
joy to meet you here! Truly God has guided you hither! Now I may
call upon your great wisdom to advise me what to do. Approach
nearer, I pray you!”
Belteshazzer advanced to the side of the horse and, bending over
the fair hand she extended to him, touched it with his forehead in
reverence and affection.
“I hold it great happiness to be of service to you,” he said. “In the
village near by is my caravan. I have there a new tent with new
furniture never used by any other. It is at your service. There await
your service also two handmaidens of my own race, daughters of a
prince of my family, discreet and worthy of trust. I have also many
servants, all well-armed. My caravan is large. Come and dwell with
us until the years of Cambyses shall be fulfilled. I know from what
you have fled. You shall be a princess of my people until these
troublous days are over. O Most Beloved of the Nations, you may
abide in my care until the time when your Prince shall come to the
throne! If you tire of the tent-life with the caravan, my palace in
Shushan, or my house in Babylon, shall be yours.”
“Is it best that I do not go to the Prince now?”
“It is best that you do not. It would mean instant war between him
and Cambyses. The times are not right for that. Neither should you
go to the lords of Persia. For Cambyses has already sent armed
men out on all the roads leading to Persepolis. Even now couriers
are not far behind you going to Susa with orders to watch for and
intercept you.”
“I will be guided by you, O Prophet of God! Lead the way and I will
follow.”
He led the way towards the village of Bagistan in the valley below,
and soon came to his caravan. He conducted her to a beautiful tent
furnished with all the luxuries of tent-life. Two beautiful maidens were
brought to her.
“My children,” said Belteshazzer to them, “behold your mistress. She
is one of the great ones of earth and is worthy of all service. She
shall be known to you as the Princess Esther. It is enough for you to
know that she is one most highly favored of our God. You must obey
her slightest wish. Your training in the house of Belteshazzer has
fitted you to serve the greatest of earth. Let your tongues never
speak unto others what you may see or hear concerning her. To all
questions say that she is a relative of Belteshazzer. For are we not
all descended from one common Father?”
They fell on their knees before Athura, the strange, beautiful one,
whose face was that of a woman though her garb was that of a man.
Each, taking one of Athura’s hands, placed it upon her head, saying
in the soft accents of the Syrian tongue: “We shall heed your words,
great Master. We are her servants.”
Athura smiled upon the maidens and raising them up impulsively
kissed them, saying in the same language, with which she was
familiar: “Your service will be light. You shall be my sisters and
companions rather than servants. The princesses of the house of
Belteshazzer are worthy to be friends of the highest born.”
Belteshazzer then retired. From chests full of rich garments, the
maids quickly produced feminine apparel and at once proceeded to
bathe, dress, and perfume their new mistress. Presently, under their
ministrations, Athura in all her matchless beauty and royal demeanor
stood before them like Deborah of old, a veritable Hebrew princess.
Belteshazzer traveled into Arabia, and the Princess Esther went with
him. No one imagined that the beautiful young woman, to whom all
naturally gave deference, was the first Princess of the Empire.
CHAPTER XIV
THE WAR AGAINST EGYPT
THE Great King continued to prepare for war with the Egyptians.
There came to him a Greek named Phanes, who at one time had
been high in the service of King Amasis of Egypt, but who, having
conspired against him, was compelled to flee. By flattery and art he
raised himself high in the estimation of Cambyses and inflamed his
mind with tales of the wealth that would be found in the great
temples of the Nile Valley. The King then hastened his preparations
and sent him to raise levies amongst the Ionian Greeks. The Greeks
who remained in the service of the Egyptian King so hated him
because of his treachery that they had made a blood covenant to kill
him. But he succeeded in recruiting a large body of his countrymen,
who marched with him and the Prince of Iran towards Tyre.
When spring opened, the vast array of men whom the King had
gathered from Iran, Assyria, and Babylonia, marched by way of
Damascus towards Tyre. Many nations contributed troops. Wild
mountaineers of the Caucasus marched shoulder to shoulder with
the polished, slighter-built Babylonians. The light-armed Getæ and
Derbicæ rode with the heavy cavalry of the Medes and Persians.
From Bactra and Sogdiana came a portion of the veteran army of
King Hystaspis. From the Zagros and Elburz mountains poured out
the fierce infantry of Aryan blood. Chariots, hundreds in number,
rumbled over the rough desert roads. Bowmen, spearmen, slingers,
and swordsmen, a half million or more in all, rolled like a tide across
the wastes. The army under the Prince of Iran was composed for the
most part of veterans of many wars, inured to army life and eager to
follow their Prince to battle. Its nucleus was the old Imperial Guard of
Cyrus, recruited to its full number of thirty thousand horsemen. The
remainder were fighters from the warlike peoples of his satrapy—
Lydians, Greeks, Scythians of the Black Sea regions,
Paphlagonians, Hebrews, and Syrians.
It was springtime when the Great King, leaving Patatheites, the
Magian, as regent of the empire, departed from his capital of
Hamadan, accompanied by his sister-wife, Artistone, and a portion of
his harem. A thousand servants marched with him to administer to
his comfort. He journeyed by easy stages to Damascus and thence
to Tyre.
The city of Tyre, though nominally independent, had been coerced
into lending her fleets to the King of Kings. Though it occupied a
strong position on an island and though its people carried on a great
trade with Egypt, yet when the veteran army of the Prince of Iran
encamped on the mainland opposite, and his demand came in the
name of the Great King that it should furnish a fleet of vessels for his
use, it hastened to comply.
During the weeks that had passed since he had received a copy of
the decree of the King concerning the marriage of Cambyses to his
sisters, the Prince had visibly aged. He had become taciturn and
stern. A smile seldom appeared upon his countenance. His officers,
who had known him for years, sympathized with him but grumbled at
his obstinacy in not declaring war against Cambyses. They were
ready for revolt. Gobryas especially was discontented. He was bitter
towards the King because of the wreck of his hopes of winning
Artistone. He reported to the Prince the spirit of revolt that pervaded
the army and urged him repeatedly to act; but the latter requested
him to wait.
When the Persian and Bactrian troops arrived, having outmarched
the King, who lingered at Damascus, their leaders came to the
Prince and offered their services, if he would but consent to seize the
government. Letters arrived from Otanes, urging him to seize
Cambyses. To all he said, “Wait!” Couriers came from his father
counseling prudence and loyalty, at least until it should certainly
appear that the King held Athura against her will. A mighty struggle
went on within him. Oath-bound loyalty to the King could scarce
restrain the wrath that fired his soul to action against the hated
tyrant.
When the couriers arrived from Damascus saying that the King was
about to leave that city, the Prince called them aside and inquired of
them if they knew whether the King was bringing his sisters with him.
They reported that he had with him Artistone, whom he presented to
all as his Queen; but as for Athura no one knew where she was,
though it was currently reported that he had imprisoned her in his
harem at Hamadan. His own couriers and spies returned from
Hamadan without other information than rumors, some of which
indicated that Athura was dead, others that she had escaped to
Persia, and others that she was imprisoned in the King’s harem.
While he was in this state of indecision, resolved one day to raise the
standard of revolt and march against Cambyses, and the next to
remain loyal, at least till he should know the truth concerning
Athura’s fate, Prexaspes, attended by a company of Medean cavalry,
rode into camp and requested an interview. The Prince received him
without delay, and alone in his tent. The wily Mede, after due
salutation, went straight to the subject of his mission.
“Great and illustrious Prince,” he said, as he stood before the Prince
of Iran, who looked upon him coldly and suspiciously, “I have come
on in advance of the King with his permission. I have heard of the
efforts of the powerful ones to persuade you to revolt and I know
also that you believe you have just cause in the act of the King with
relation to his sisters. I have made the Great King realize that he has
committed the worst blunder of his life and that upon your acts will
not only depend the result of this war but the continuance of his
empire. I call to your remembrance that the subject nations are but
waiting for the outbreak of civil war amongst the Aryans to throw off
the Aryan rule. Should you revolt, every conquered nation would
revolt; and if you should succeed, you would have the world to
conquer over again. This you know as well as I. Is it not so?”
He paused. The Prince of Iran inclined his head in assent.
“Proceed with your message,” he said coldly.
“This being so,” continued Prexaspes, “I deemed it best to come
hither and tell you the facts with relation to the King’s brother and
sister. I am reliably informed that Prince Bardya is dead. He died at
the hands of mountain robbers. Of course I do not know this for
certain. As to the Princess Athura, she escaped the same day that
the King issued his decree, a copy of which I sent to you. He never
consummated his marriage with her. I know that she escaped,
because the King suspected that I had aided her. As to whether I did
aid her or not, I say nothing, except that I rejoiced when I heard it—
not openly, for I apparently made every exertion to find her. Now the
King was advised to marry his sisters by a certain Magian prophet
who predicted that a son of his sister should sit on the throne after
him. The King is impulsive and acted without advising with me. But
having married Artistone, he is satisfied that he has complied with
the prophet’s prediction; and in order that you may know his good-
will towards you he has made a second decree, declaring that Athura
is free from wedlock with him and granting her leave to marry whom
she will. This am I directed to place in your hand upon being satisfied
that you are firm in adherence to your oath taken to Cyrus and will
state that you will remain loyal to the King. The King also confirms
you in the office of chief commander of this army under him. I assure
you, Great Prince, that the King is sincere, though, I frankly state, it
is because he knows that one word from you or any injury to you
would be the signal for the rebellion of all Iran save perhaps Medea.”
He paused. The Prince stood in silence a moment gazing at the
floor, considering the King’s message.
“Will the King give me his statement as King that he has not done
injury to Athura?” he then demanded.
“Not only that, but he has stated in this his decree that the marriage
never has been consummated. Furthermore I know all that
happened from a private examination of the servants who saw the
King when he went to the Princesses to announce his will to them,—
how he fled from Athura’s dagger; how he set watches at her
bedroom door; how there stood open the lattice of a closet-window
connected with the bedroom by which she escaped; and how,
afterwards, the rope ladder by which she passed over the walls was
found; and it is even known how she purchased a horse which later
was found near Bagistan. She rode away on it disguised as a youth.
There she disappeared.”
The Prince started and smiled slightly when Prexaspes mentioned
the hinged lattice in the closet-window. He had heard from Athura of
this means of egress before. He asked eagerly, “No further trace of
her has been found?”
“No. But the King thinks she has fled to you or to Persia.”
The Prince did not answer this suggestion but held his hand out for
the decrees, saying: “Assure the King that I accept his decree and
will loyally support him. But let him not again, I implore, place me in
so grave a position, lest I forget my vow to the great Cyrus!” He took
the decrees from the hand of Prexaspes, who bowed low and
backed from the tent with a second low salaam.
So it came about that Cambyses feared not to come on to Tyre and
that the army, duly marshaled in massive lines, received the Great
King with honor. The Prince of Iran, accompanied by Hydarnes of the
foot soldiers, Vomisces of the cavalry, and a hundred other Persian
officers, greeted the King at the limits of the camp and followed him
as he rode slowly between the lines of soldiers to his pavilion. The
soldiers knelt as he passed, shuddering or wondering as they saw
the bloated red face and cold, glittering eyes of their ruler. When they
saw the Prince of Iran riding near his right hand in the place of honor,
they were pleased and broke forth in acclamations, which the Great
King thought were given to him. But his countenance gave no
indication of his emotions, and his greetings to his officers were
slight and cold.
No sooner had the King entered his pavilion and called for wine than
Prexaspes, who had personal charge of the King’s household,
entered, and, having bent his knee, requested leave to speak. The
King said impatiently:
“Well, speak! Undoubtedly you come to preach policy again! I liked
not the dark looks of those cursed Persians! I have a mind to send
some of those officers a bowstring!”
“Having your gracious leave, O King, I will speak plainly,” said
Prexaspes, boldly. “Does not my welfare depend solely upon your
favor? Believe that I speak, therefore, for your best interests. There
was grave trouble brewing amongst those Persians. The favor you
have shown to the Magi and your marriage with your sister, against
which, you know, I most strongly advised, and the grave insult
thereby inflicted upon the Prince of Iran, have stirred in them the
spirit of revolt. I have trembled, O King! My spies have kept me well
informed. There stands between you and destruction at this moment
the word of one man, and that one is the Prince of Iran! Order me
stricken dead, if you will, O King, for speaking so boldly; but I tell you
the truth! I swear by all the gods, I speak the truth!”
The King’s face was dark with wrath, but he realized the force of his
adviser’s words. He gulped down a great cup of wine, threw the cup
upon the floor, and passed a trembling hand over his face.
“You may speak truth, Prexaspes,” he admitted. “But how about the
Medes and the other levies, are they not faithful? They outnumber
the Persians and Bactrians. Besides, have I not stultified myself
already by your advice and placated that same Prince of Iran?”
“The Medes may be depended upon, but none others. It is true we
have placated the Prince of Iran. But with your permission I will offer
further advice.”
“Say on!”
“I advise that you send for the Prince of Iran and personally greet
him with your royal hand and assure him of your favor as King. Thus
will you fasten him to your cause and satisfy the Aryans, by whose
power alone you may hope to prosecute this war successfully.”
The King broke forth in a torrent of curses and imprecations. It was a
bitter tonic that Prexaspes had prescribed. He hated the Prince of
Iran with the hatred of jealousy and fear. He ended his explosion by
saying:
“But the day will come when I shall surely slay that man! Now,
indeed, I see that I must dissemble. Press me not too far on this
path, Prexaspes, lest I slay you! Go then and command him to come
here. I will dissemble. I will be as wise as a serpent—for a time!”
Prexaspes bowed low and backed from the royal presence. He sent
a messenger to the Prince of Iran, who came at once.
The Prince was pale but composed. He bowed low over the King’s
extended hand, saying: “I am here at the King’s command. Let it
please the King to command.”
The King glowered sullenly upon the Prince, but endeavored to
infuse into his tones a note of cordiality, as he said: “Prince
Hystaspis, I have trusted you greatly, though, as you well know, no
love has ever been between us. I hear that there has been much
treasonable talk in this army.”
“I know there is much dissatisfaction, O King!” answered the Prince.
“But it cannot be said to be treasonable. The people of Iran like not
the power and place given to the fire-worshipers of the hills. The
Persians, who occupied the chief places under King Cyrus, are
grieved that they have not found favor with his son.”
“We will show these proud slaves who grumble, that the King of
Kings brooks no interference!” exclaimed the King, his anger blazing
forth for an instant. “Prexaspes has given you my decree concerning
Athura. You may rest assured that she and you may marry safely.
Where is she? Of all men, you should know.”
The Prince was surprised at this question, and the manner of the
King. Evidently Cambyses was endeavoring to restrain his passions
and speak pleasantly to him.
“I have not seen the royal lady since I bade her farewell at
Persepolis and took with me her pledge to marry me,” he answered.
“Neither have I had a letter from her since the day when it pleased
you to make a new law that the King might marry his sisters. Nor
have I heard what has become of her, save that I did hear rumors
that she had escaped or had been slain by your orders.”
“The report that Athura is dead is not true!” said Cambyses. “She
fled from the palace the day my decree was made and keeps well
hidden, though my slaves have searched the world for her. Find her
and marry her, if you will! You have my consent. Let that subject be
forgotten between us. Is this army ready to march?”
“It is ready.”
“Then let the march begin on the morrow. The insults we have
received from Egypt’s King must be avenged and that country added
to our empire. It is said to be very rich. I am weary with the day’s
journey and will rest. Give such orders as you deem necessary.
Cambyses, the King of Kings, remembers not the former days. My
trust and favor I give to you; and my consent to your marriage with
Athura shall not be withdrawn.”
He turned away, and the Prince with a salute left the pavilion. It
seemed to the latter that the sky had taken on a new glory and that
the golden rays of the setting sun were indicative of joy. A load had
been lifted from his heart. Athura had escaped a miserable fate and
must be still alive. One so resourceful as she would know how to
save herself. It mattered little that Cambyses hated him. His duty
demanded faithful service to the King and his oath to the Great King
would remain unbroken. He called together his friends among the
officers and briefly informed them that all present cause for
dissatisfaction had been removed and that he expected of them loyal
service to the King.
On the next day the great army slowly uncoiled its vast length and
moved down the narrow coast-line of Canaan, bearing woe to
ancient Egypt.
Egypt was ill-prepared for war. From the time that Cyrus had
reduced all Syria, including Canaan, to subjection, the Egyptian
King, Amasis, had known that a conflict with the new world-power
would come. He had heard of the preparations for war made by
Cambyses and had endeavored to make ready. But Egypt had long
since lost its ancient vigor. Its people had become rich and indolent.
They loved not war. They depended mainly upon foreign auxiliaries
hired by their money for their defense. Thirty thousand Greeks and
many thousand adventurers from other lands formed the main
strength of the Egyptian army. Levies drawn from an agricultural and
trading people among the Egyptians themselves were neither

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CVR_CASU8130_02_SE_CVR.indd 1 04/03/2015 11:53

List of figures xiii

Part 1 Introduction to banking

1 What is special about banks? 3

2 Bank activities and services 20

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Part 2 Central banking and bank regulation

5 Theory of central banking 121

6 Central banks in practice 154

7 Bank regulation and supervision 189

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7.5 Limitations of regulation 202

8 Bank failures and banking crises 227

Part 3 Issues in bank management

9 Banks’ balance sheet and income structure 259

10 Bank financial management 296

11 Banking risks 329

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11.3 Interest rate risk 332

12 Bank risk management 352

Part 4 Comparative banking markets

13 Banking in the UK 399

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14 Banking in Europe 441

15 Banking in the US 491

16 Banking in Japan 527

17 Banking in emerging markets 554

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Part 5 Advanced topics in banking

18 Banks and markets 589

19 Mergers and acquisitions 616

20 Bank competition and financial stability 644

Appendix A1 Interest rates, bonds and yields 669

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1.1 The intermediation function 4

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6.2 Statutory decision-making bodies of the Bank of England 157

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11.2 Reinvestment risk 336

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2.1 A simplified bank balance sheet 21

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9.2 Bank of England aggregate assets of UK banks (end-year 2012,

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2.1 How banks create money: the credit multiplier 22

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8.4 The Icelandic meltdown 250

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● Part 1 Introduction to banking

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