A The title of this book compelled me to read it, and I'm a better consultant for having done so. Strategy consultants such as me focus on keeping clients at least 10,000 feet up when discussing where we want to go in the next five years. But this doesn't mean that our knowledge base shouldn't be in the weeds. This book does a deep dive into the weeds of balance sheet management.
The author is very experienced in bank investment portfolio management. It appears as though the majority of his long career has been spent here. So his insights and analysis were critical to teaching me, and possibly you, about seemingly mundane yet important topics such as tax efficiency, derivatives, and BOLI.
At first I was becoming disappointed with the book, expecting to hear the author's point of view on what community financial institutions ("FIs") need to do to succeed in our brave new world. I realized the book was not going to go there when he started making references to specific Bloomberg screens.
But the author's detailed look at what type of investments should and should not be in an FIs portfolio and the characteristics of those investments was very instructive to me and any executive at an FI that is outside of the Treasury function. If you are an experienced FI portfolio manager, this book may not be for you. However, it makes a great refresher and an important reference book on the bookshelf. It can also help the experienced portfolio manager explain complicated financial instruments to other senior managers and the board of directors.
Here is what I liked about the book:
1. Spoke specifics about various bonds and instruments to include in a FIs bond portfolio;
2. Gave specific instructions on how to analyze those instruments;
3. Taught me more about BOLI than I thought I needed to know but probably should know;
4. Was published in 2010, so it has up to date lessons learned;
5. Provided a great primer on derivatives to manage interest rate risk. A great quote: "Never manage interest rate risk through your customers". The author demonstrated how to give customers the loan they wanted and hedge the risk.
Here is what I didn't like about the book:
1. Some may view it as overly technical and in the weeds, as I did when I first started calculating the cost of liquidity in my head (don't try this at home without proper supervision);
2. Directs most of the book to balance sheet management. It does not discuss the customer aspect very much.
However, the minuses are very minor considering the pluses. I don't think there is another book out there for the non-portfolio manager to understand what is going on in 20%-25% of the FIs balance sheet, in pricing committee, or asset-liability management. This book will help you immensely in that regard, and I highly recommend it.
Book Report note: I will occasionally read books that I believe are relevant to the banking industry. To help you determine if the book is a worthwhile read for your purposes, I will review them here. My mother said if I did not have something nice to say about someone, then don’t say it. In that vein, I will only review books that I perceive to be a “B” grade or better. Disclosure: I will typically have the reviewed book on my Amazon.com bookshelf on the right margin of this blog. If you click on any book on the shelf and buy it, I receive a small commission; typically not enough to buy a Starbucks skinny decaf latte with a sugar-free caramel shot, but perhaps enough to buy a small coffee at Wawa.