Interest Rate Risk

1980s Savings and Loan Crisis【存贷危机】 in the US

银行业借短投长，借新还旧【吸取新存款，偿还旧存款】。借新还旧存在 rollover risk。

通货膨胀时，长期通货膨胀率上升较高，短期相对较低，使得长短期实际利差为负，造成银行巨额亏损。

美国存贷危机的具体经过如下：

在1970-1980年代，美国处于一个高通胀、高利率的时期。当时，美国储贷协会（S&L）的业务模式相对单一，主要集中在吸收短期存款并发放长期固定利率的住房抵押贷款。这种资产负债的久期错配，使得它们在利率大幅上升时面临严重问题。当市场利率上升，储贷协会需要支付更高的利息来吸引存款，但其长期贷款的收益却是固定的，导致存贷利差倒挂，运营开始发生困难。

1980年代初期，大批储贷协会开始亏损。为了挽救这个行业，美国政府先后推动了一系列政策，如利率市场化、允许破产机构营业、放松资本要求等。这些措施暂时缓解了危机。然而，好景不长，1986年油价暴跌引发“能源州”经济和地产崩盘，地区储贷协会破产并蔓延至全国。随后的1987-1989年，美联储重回加息周期，这使得储贷协会的情况雪上加霜。1988-1991年，储贷协会经历了大规模的“倒闭潮”。

此次危机带来了深远的影响，导致美国经济在1990年8月至1991年3月陷入了历时8个月的衰退。此后，美国政府进行了大规模的金融监管改革，并加强了对金融机构的监管。

Rising inflation led to a restrictive monetary policy.

The increase in short-term rates pushed up funding costs for S&Ls.

Result

A long-running crisis in the United States was sparked.
The industry lost more money through poorly controlled credit and business risks.
The world’s most expensive banking system bailouts: USD 160 billion.

Lessons

Firms should manage their balance sheet to ensure that effect of interest rate movement on assets remains correlated with the effect on liabilities.

确保资产和负债久期匹配。

The use of classical duration matching tools and more sophisticated methods (e.g., caps, floors, and swaps).

Funding Liquidity Risk

欠钱但无力还钱。

Liquidity Crisis at Lehman Brothers【雷曼兄弟】

雷曼兄弟的流动性危机是2008年全球金融危机的重要事件之一。以下是该危机的详细介绍：

在2008年前，雷曼兄弟是一家全球性的投资银行，涉及的业务包括证券交易、资产管理、投资银行等。然而，随着美国房地产市场的崩溃，雷曼兄弟陷入了严重的困境。原因在于，雷曼兄弟在房地产市场中有大量的投资，并持有大量的抵押贷款证券（MBS）和衍生品等资产。当房地产市场崩溃，这些资产迅速贬值。

由于雷曼兄弟的资产负债表上存在大量的负债，贬值的资产导致公司的流动性严重不足，进而使其难以支付债务。这就是雷曼兄弟的流动性危机。在尽力寻求外部资金支持无果后，雷曼兄弟最终宣布破产。

雷曼兄弟的破产引发了全球的金融危机。其破产事件导致其他金融机构的信心瓦解，借款成本上升，市场流动性紧张。许多其他的银行和金融机构也面临破产的风险。全球的股市大幅下跌，多个国家的股市崩溃。此次危机也使得全球经济陷入了衰退。

总的来说，雷曼兄弟的流动性危机是由于其在房地产市场中的过度投资和资产负债表的负债规模过大导致的。这次危机对全球经济产生了深远的影响，也揭示了金融机构在风险管理和流动性管理方面的问题。

大而不倒：雷曼兄弟的陨落 - 七绝的文章 - 知乎
https://zhuanlan.zhihu.com/p/600805216

The institution sold mortgages to residential customers and MBS to investors.
Lehman’s growth strategy was aggressive and it made outsized bets on real estate.
It borrowed short-term money to finance long-term investment.
After the collapse of Bear Stearns, investors lost confidence in Lehman, which led Lehman to lose its funding source, and to bankruptcy.

Liquidity Crisis at Continental Illinois

大陆伊利诺伊银行的流动性危机具体介绍如下：

在危机爆发前，大陆伊利诺伊银行一直是美国最大的商业银行之一，资产规模庞大。然而，随着不良贷款的增多以及资产负债管理的不善，该银行逐渐陷入了流动性困境。

流动性危机的主要表现是，银行无法满足客户的提款需求和其他支付义务。这导致了恐慌情绪在存款者和市场中蔓延，进一步加剧了流动性紧缩。同时，由于信心丧失，其他金融机构也不愿意与大陆伊利诺伊银行进行交易，进一步孤立了该银行。

面对流动性危机，大陆伊利诺伊银行采取了多种措施来挽救局面。首先，他们试图通过出售资产来筹集资金，但由于市场环境恶劣，资产质量下降，这并不容易实现。其次，他们向其他金融机构寻求紧急贷款，以缓解短期资金压力。然而，由于市场恐慌和信心丧失，其他机构对借款给大陆伊利诺伊银行持谨慎态度。

最终，在流动性危机愈演愈烈的情况下，美国联邦政府和美联储介入了此事。他们提供了紧急资金支持，以确保大陆伊利诺伊银行能够继续运营并避免破产。这一举措有助于稳定市场情绪，并防止了危机进一步蔓延。

总之，大陆伊利诺伊银行的流动性危机是一次严重而引人注目的金融危机。它揭示了银行在风险管理和流动性管理中的重要性，同时也促使了监管机构和金融市场对相关规则和制度的改进。

Aggressive growth strategy: commercial and industrial lending from USD 5 billion to over USD 14 billion.

Main funding source: federal funds and large issues of CDs.

The failure of Penn Square caused Continental【一家金矿公司】 to suffer heavy losses.

It was unable to fund its operations from the U.S. markets and borrowed at much higher rates in foreign money market.

Rumors led to run on the bank, and regulatory authorities stepped in.

Northern Rock【北岩银行】-Liquidity and Business Models

购买了大量资产支持证券。

An excessive use of short-term financing for long-term assets and a sudden loss of market confidence triggered a funding liquidity crisis.

Northern Rock accepted emergency government support and then public ownership.

Lessons

Liquidity stress testing programs are important.
Banks may also mitigate funding liquidity risk by reducing the maturity of their assets.
Firms need emergency liquidity cushions to ensure they can meet their commitments.
Asset/liability management (ALM) decisions need to be considered by trade-offs: trade-off between funding liquidity and interest rate risk, and trade-off between cost and risk mitigation.
All the components of an ALM policy are linked and must be part of a holistic and integrated approach to balance-sheet management.

Implementing Hedging Strategies【重要】

Metallgesellschaft 【德国金属公司】Case

 MGRM【retail and marketing】: long-term contracts to supply customers with gas and oil products at fixed costs and to hedge these contracts with short-term gas and oil futures, which is known as a rolling hedge.

 In 1993, a large decrease in gas and oil prices had resulted in funding needs of around $900 million.

 MG negotiated unwinds【解除】 of these contracts at unfavorable terms.

Lessons

 When we use shorter-term hedges against longer-term contracts, the strategy can be successfully carried out only if proper risk controls are applied【如会计风险】.

 It’s important to select appropriate models to use for both pricing and hedging.

 Accounting issues and potential tax【and accounting policy】 implications need to be considered when devising a hedging strategy.

Model Risk

Niederhoffer Case

哈佛选课法；索罗斯的御用操盘手。

The strategy was writing large quantities of uncovered deep out-of-the-money put options on the S&P 500 Index and collected the option premiums. It failed when the stock market fell by over 7% in one day, which caused the fund’s equity to be wiped out by brokers.
Financial markets rarely offer a "free lunch“.

Long-Term Capital Management【长期资本管理公司】

LTCM’s Presumed Positions

Long U.S. interest rate swaps and short U.S. government bonds at a time when these spreads were at historically high levels.
Over the life of the trade, this position will make money as long as the average spread narrows.
LTCM sold equity options at historically high implied volatilities.

LTCM’s Funding Sources

Deal in over-the-counter markets as well as on futures exchanges.
LTCM always negotiated terms that avoided posting the initial margin.

The Crisis

The triggers: Russian debt default in 1998.
The LTCM fund’s equity began to decline, and it was reluctant to cut positions in a turbulent market.
As competitors learned more about the actual positions, their pressure on market prices in the direction unfavorable to LTCM intensified.

The Fall of LTCM

1994: 20%, 1995: 43%, 1996: 41%, 1997: 17%
In August and September of 1998: a loss of capital more than 70%
14 of the largest creditors contributed a fresh $3.65 billion in equity investment into the LTCM fund to allow for a substantial time period in which to close out positions.
By 2000, LTCM had been wound down.

Lessons of LTCM

LTCM failed to supplement VaR measures with a full set of stress test scenarios.
LTCM failed to account for the illiquidity of its largest positions.

The London Whale

The London Whale一个交易员的外号。

In 2012, the Chief Investment Office (CIO) of JP Morgan Chase placed a massive bet on a complex set of synthetic【合成的】 credit derivatives that lost at least USD 6.2 billion.

The CIO took a trading strategy that called for purchasing additional long credit derivatives, which ended up increasing the portfolio’s size, risk, and Risk Weighted Assets (RWA) and taking the portfolio into a net

long position.

As the CIO changed valuation methodology and mismarked its books,operation risk was included in the case.

Poor risk culture of corporate governance was a big problem.

VaR model was manipulated in favor of CIO.

Rogue Trading and Misleading Reporting

Barings Bank

 A loss of $1.25 billion due to the unauthorized trading of a trader Nick Leeson forced Barings into bankruptcy.

 Leeson disguised his speculative position and manufactured substantial reported profits for his own accounts.

 The loss was not detected as Leeson was allowed to function as head of trading and the back office => depriving the firm of an independent check on his activities.

Lessons

 The absolute necessity of an independent trading back office.

“Trading back office” 指的是负责处理交易后勤事务和管理的部门或团队。它通常包括交易确认、结算、资金清算和报告等后台运作的功能。交易后台的职责是确保交易的顺利执行和记录，并与其他部门（如风险管理、财务和监管部门）进行协调和沟通。

 Outsized profits need to be independently investigated and rigorously monitored.

Leeson’s trading involved two strategies

First, selling straddles on the Nikkei 225 【日经225指数】and arbitraging price differences on Nikkei 225 futures contracts that were trading on different exchanges.

首先，在日本股市指数日经225上卖跨式期权，并对交易在不同交易所进行的日经225期货合约的价格差进行套利。

Second, in order to recover the losses, Leeson abandoned the hedged posture in the long-short futures arbitrage strategy and initiated a speculative long-long futures positions on both exchanges in hope of profiting from an increase in the Nikkei225 which finally led to much more loss

Financial Engineering and Complex Derivatives

Bankers Trust【信孚银行】

BT offered P&G【宝洁】 and Gibson a probable but small reduction in funding expenses in exchange for a potentially large loss under some less probable circumstances.

Both P&G and Gibson claimed that they had suffered large losses in derivatives trades they had entered into with BT due to being misled by BT as to the nature of the positions.

宝洁和吉布森都声称，由于被 BT 误导有关交易头寸的性质，它们在与 BT 进行的衍生品交易中遭受了巨大损失。

BT was forced into an acquisition by Deutsche Bank【德意志银行】.

Lessons of Banker Trust

Banks should match the degree of complexity of trades to the degree of financial sophistication of customers.

Be cautious about how to use any form of communication.

Orange County

Orange County treasurer Robert Citron borrow USD 12.9 billion through the repo market and used the borrowed funds to purchase complex inverse floating-rate notes【反向浮动利率债券，可以追加杠杆】.

Repurchase Agreement市场（Repo市场）是一种金融市场，参与者可以通过回购协议进行短期借贷交易。在这种交易中，借方出借资金给贷方，并同时约定以特定利率和在特定日期回购（回售）同样的资产。回购利率和回购资产的价值差异形成了回购交易的收益。Repo市场是金融机构之间进行流动性管理和融资的重要工具，也是货币政策的重要传导渠道之一。

Before 1994 in the favorable upward-sloping environment, Citron was able to increase the return of the fund by 2% with yield curve play. But after a 250-basis point interest rate increase, he lost USD 1.5 million by December 1994.

Orange County bankrupted as some of the fund’s lenders stopped rolling over their repo agreements.

Lessons of Orange County

 Leverage need to be used carefully and properly.

 Firms need to understand the risks that are inherent in their business models.

Sachsen Landesbank

 Sachsen opened a unit in Dublin to set up vehicles for holding large volumes of highly rated U.S. MBS.

 While the vehicles were off the parent bank’s balance sheet, they benefited from Sachsen’s guarantee.

 The operation was too large compared to the size of Sachsen’s balance sheet. When the subprime crisis struck in 2007, Sachsen’s capital was wiped out and it was sold to another German state bank.

Lessons of Sachsen Landesbank

 Funding liquidity commitment should be considered as a credit or liquidity risk rather than only an operation risk.

Reputational Risk

Volkswagen Emission Cheating Scandal

 Volkswagen programmed certain emissions controls. Its diesel engines would be activated only during regulatory testing, which made the nitrogen oxide levels appear to meet U.S. standards.

 From 2009 through 2015, Volkswagen put this programming in place in over ten million cars worldwide.

 In September 2015, the United States Environmental Protection Agency (EPA) announced the scandal. The share price of the company fell by over a third and it faced potential billions of dollars of fines and penalties

Corporate Governance

Enron【安然事件】

 Enron, which had been named "America’s Most Innovative Company“, with 20,000 employees and revenues of nearly USD 101 billion in 2000,declared bankruptcy in December 2001.

 It turned out to be a poster child of corporate governance failure and poor risk management.

"poster child"这个短语通常用来指代某个人、物、事件或情况等，在某个方面具有非凡的代表性，是一个突出的典型。在所给的句子中，"poster child of corporate governance failure and poor risk management"表示这件事成为了企业治理失败和风险管理不善的典型案例，突出了这方面的问题。这个短语通常带有贬义或讽刺的意味，表示某个事物是个不良例子。

Reasons for Enron’s bankruptcy

 Senior management acted in their own self interest and against the interests of shareholders

 The board failed to fulfill its fiduciary duties to the shareholders.

 Enron also used fraudulent accounting practices to hide flaws in its actual financial performance.

Cyber Risk

The SWIFT Case

 SWIFT is the world‘s leading system for transferring funds electronically among banks.

 In April 2016, an article published in the New York Times revealed that hackers used the SWIFT network to steal USD 81 million from the account of Bangladesh Bank (the central bank of Bangladesh) at the New York Fed.

 The malware sent unauthorized SWIFT messages to move the funds to the hackers’ account and the database record was deleted.