Six chapters from FSRI's first book, a volume on risk management to be published by McGraw-Hill, are previewed in this issue by Todd A. Barrett.
Risk management can inspire frantic flights of number crunching and analysis.
Ancient Egyptians may have believed that pyramids held a special power, but Lodge, a senior vice president of Columbus, Ohio-based Banc One, puts his faith in rectangles. But the geometry isn't nearly as simple when the margins start to vary over time. If rates decline, the income generated by the bank's assets takes a hit but its obligations remain unchanged. Thus, NIMs fall, taking yet another chunk out of the rectangle, threatening the bank's more important, if less graphically substantial, bottom line. To protect against such risks, Lodge suggests that commercial bankers play a little game of financial Tetris.