In this chapter we aim to bring together all the elements of principle and sound best‐practice approach that we described in earlier chapters, and join them in as coherent and user‐friendly a format as possible. To do this we will use real‐world case studies to illustrate how these principles can be applied to solve real‐world problems as they arise. Banks, like all corporate entities, are collections of people with diverse backgrounds and experience. The process undertaken to effect change and/or improvement, principally in the balance sheet risk management space, must take into account the culture and operating process in place at the firm. That said, the aim of the case studies described here is to show that adherence to logical, unemotional best‐practice principles is almost invariably the most effective way to approach problem solving. This calls for a certain level of technical expertise and experience in finance, emphasising at all times that the importance of a sound balance sheet structure remains the most reliable way to ensure a sustainable, through‐the‐cycle banking operation.

The foregoing chapters have shown that the art of banking over the long‐term is essentially that of managing capital and liquidity in such a way that external market crashes or internal stress events do not “sink” the bank. This is the long‐term objective. In the short and medium term, the challenge is to ensure that day‐to‐day processes and procedures remain fit for purpose, be they in the arena of interest‐rate risk, risk committee governance framework, or funds transfer pricing (FTP). By approaching bank management in this way, the bank is better placed to survive continuously, throughout the economic cycle, and in perpetuity – or at least as long as the bank's managers and shareholders wish it to remain a going concern.

HOW TO STUDY THIS CHAPTER

This chapter has a different structure to the rest of this book. It is comprised of real‐world case studies, selected to illustrate problem solving of specific operational or other issues that have been identified, discussed, analysed, and ultimately fixed though application of a chosen solution. The case studies all illustrate specific technical issues that are of the kind addressed in Chapters 1–16. The exception to this is Case Study 1, from the UK bank Northern Rock, as this is an excellent illustration for the need to have sound overall asset–liability management (ALM) principles in place. As such it is a good introduction to this chapter.

Readers should also be familiar with the additional reading listed for each case study. The Core Text referred to is the author's book The Principles of Banking (2012).