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Financial Instruments and Institutions: Accounting and Disclosure Rules, 2nd Edition


Praise for Financial Instruments & Institutions Accounting and Disclosure Rules, Second Edition

"Financial Instruments and Institutions is a superbly informative integrated treatment of institutional, analytical, and financial reporting issues for financial institutions. I strongly recommend the book for analysts, investors, regulators, educators, and anyone with an interest in a coherent, intellectually rigorous discussion of issues encountered in reporting on and analyzing financial institutions and their commercial arrangements, including fair value measurements, risk reporting, and structured finance."
—Katherine Schipper, Thomas F. Keller Professor of Business Administration, Duke University

"When you combine the unique risk attributes of financial institutions with the complex transactions they enter into, it can make even the most seasoned investor shudder. Dr. Ryan provides a well-structured and logical approach to the analysis of these companies, layering on explanations of the transactions they enter into and how they impact your analysis. Seasoned investors will find the book an important reference tool, especially on securitizations and derivatives and the new chapter on reinsurance."
—Janet L. Pegg, CPA, Accounting & Taxation Research, Bear, Stearns & Co. Inc.

"Stephen Ryan's book is indispensable for anyone involved with financial institutions, whether it be bankers, insurers, investment advisors, or the student. There is no better book for understanding how these institutions work and how one handles their financial statements to gain that understanding. The detailed coverage of financial instruments—and the accounting for financial instruments—is outstanding."
—Stephen Penman, George O. May Professor and Morgan Stanley Research Scholar, Columbia Business School

Praise for the First Edition

"To any professional engaged in hands-on analysis of financial institutions' financial statements, this exhaustive text is an indispensable resource."
—Martin S. Fridson, CFA, Financial Analysts Journal

Stephen G. Ryan is an Associate Professor of Accounting and Robert Stovall Faculty Fellow at the SternSchool of Business, New York University. Prior to that position, he was an assistant professor of accounting at the Yale School of Organization and Management and has been an associate consultant with Bain & Company. He has written numerous articles that have appeared in such publications as Accounting Horizons, Financial Analysts Journal, the Accounting Review, and the Journal of Financial Statement Analysis. He is an Editor of the Review of Accounting Studies. In addition, he is on the FASB's Financial Institutions Advisory Group and its Liabilities and Equity Resource Group.


CHAPTER 1. Financial Instruments and Institutions.

Main Ingredients of the Analysis of Financial Instruments.

Activities and Risks of Financial Institutions.

Valuation of Financial Institutions in Practice.

CHAPTER 2. Nature and Regulation of Depository Institutions.

Activities of Depository Institutions.

Bank Regulation.

Bank Subtypes.

Recent Trends.

CHAPTER 3. Thrifts.

Financial Statement Structure.

Main Risk-Return Trade-Offs and Financial Analysis Issues.

CHAPTER 4. Interest Rate Risk and Net Interest Earnings.

Views of Interest Rate Risk.

Interest Rate Risk Concepts.

Analysis of Net Interest Earnings.

Rate-Volume Analysis.

Repricing Gap Disclosures.

CHAPTER 5. Credit Risk and Losses.

Economics of Credit Risk.

Accounts for Loans and Loan Losses.

Accounting and Disclosure Rules for Unimpaired Loans.

Accounting and Disclosure Rules for Impaired Loans.

Loan Portfolio Quality and Loan Loss Reserve Adequacy.

Research on Banks’ Loan Loss Reserves.

Appendix 5A: SunTrust Banks—After the Restatement.

CHAPTER 6. Fair Value Accounting for Financial Instruments: Concepts, Disclosures, and Investment Securities.

Fair Value Accounting for Financial Instruments.

Disclosures of the Fair Value of Financial Instruments.

Investment Securities.

Appendix 6A: Washington Federal’s Big Gap.

CHAPTER 7. Mortgage Banks.

Mortgage Banking Industry, Major Players, and Activities.

Financial Statement Structure.

Main Risk-Return Trade-Offs and Financial Analysis Issues.

Accounting for Fees and Costs.

CHAPTER 8. Securitizations.

Why and What?

Securitization Structures.

SFAS No. 140.

Financial Analysis Issues.

Empirical Research on Securitizations.

Servicing Rights and Prepayment-Sensitive Securities.

Appendix 8A: Doral Financial’s Interesting Interest-Only Strips.

CHAPTER 9. Elements of Structured Finance Transactions.

Special-Purpose/Variable-Interest Entities.

Related Transactions.

Hybrid Financial Instruments.

Financial Guarantees.

Recent SEC Decisions Regarding Structured Finance Transactions.

CHAPTER 10. Commercial Banks.

Balance Sheet.

Income Statement.

Cash Flow Statement.

CHAPTER 11. Derivatives and Hedging.



SFAS No. 133 (1998), as Amended.

Framework for Assessing Financial Institutions’ Derivatives and Hedging.

CHAPTER 12. Market Risk Disclosures.

Overview of FRR No. 48 (1997).

Tabular Format.

Sensitivity Approach.

Value-at-Risk Approach.

Comparison of Disclosure Approaches.

Effect of SunTrust’s Derivatives and Hedging on Its Market Risk.


Appendix 12A: Bank of America’s Derivatives, Hedging, and Market Risk.

CHAPTER 13. Lessors and Lease Accounting.

Competitive Advantages of Leasing.

Lease Structures and Contractual Terms.

Lessors’ Risks.

Lease Accounting Methods.

Analysis Issues Regarding Lease Accounting Methods.

Special Lease Transactions.

Lessors’ Financial Statements.

Lease Disclosures.

Possible Future Changes in Lease Accounting.

CHAPTER 14. Insurers and Insurance Accounting.


Risk-Return Trade-Offs.


Primary Insurance Accounting Standards.

Accounting Standards Governing Embedded Derivatives and Other Life Insurance Policy Features.

Financial Statements.

Line of Business Disclosures.

Other Insurance Accounting Systems.

CHAPTER 15. Property-Casualty Insurers’ Loss Reserve Disclosures.

Loss Reserve Footnote.

Loss Reserve Development Disclosures.

Calculating Loss Reserves by Accident Year.

Calculating Loss Reserve Revisions by Accident Year.

Calculating Claim Payments by Accident Year and Tail.

Constructing Accident Year Loss Reserve T Accounts.

Property-Casualty Expense Ratios.

CHAPTER 16. Reinsurance Accounting and Disclosure.

Accounting and Analysis Issues.

Reinsurance Contracts.

Accounting for Reinsurance Contracts.

Reinsurance Disclosures and Analysis.

Evolution of Financial Reporting for Reinsurance.