TITLE : BANK INVESTMENTS. 2ND ED.*

The objective of this text is to explain the nature of the more important bank investments, to demonstrate the relationship of investment management to other functional areas of the bank, and to discuss the factors that affect investment strategies and decisions. Emphasis throughout is on the basic principles with which investment management should be familiar-fundamentals such as the nature of risk, liquidity, and yield; how each is measured; and how they are related.

The first half of this book explains the basic characteristics of the major types of bank investments, stressing the characteristics they share and the differences between them. Chapter 2 introduces the concepts of yield, risk, ancl liquidity, those attributes of every financial asset that influence the desirability of ownership. The following two chapters explain the nature of U.S. Treasury and agency debt and of state and local government securities. The reasons that these securities are issued, how they are issued and redeemed, their quality, and their roles in commercial bank investment are discussed. Where the credit quality of securities varies, there is an explanation of which data should be analyzed prior to the investment decision. The emphasis is on the appropriateness of these securities for bank investment and not on the strategies and policies that might be followed in buying and owning them. Chapter 7 examines a wide variety of money market investments and stresses their role in liquidity management.

Chapter 8 takes a look at the operations of securities markets, especially the activities of securities dealers. The following chapter explains the nature and desirability of bank objectives and examines how a bank's objectives, policies, and strategies are formulated. The next chapters deal with the management of the commercial bank's primary reserves, seconclary reserves, and investment account. The types of assets that qualify for holding and the factors that should influence invesment decisions are discussed. Also emphasized is the bank's need to coordinate its investment function with its other activities, including lending, so, that it gives proper attention to adequate liquidity, yield, and safety in the assets it holds.

In investment management, banks must be alert to the current and the evolving situation, especially to changes in fiscal and monetary policy, the subject of Chapter 13. Liability management and a cyclical strategy for bank investment are discussed in the final chapter.

The emphasis throughout this text is on the basic factors that influence bank investment. The particular needs of the newcomer to this subject have been kept in mind, and, as far as possible, overly detailed and highly sophisticated techniques have been avoided. It is hoped that this new edition of Bank Investments will be an effective learning tool for students who want to acquire a basic knowledge of the investment function.

I would like to thank the following bankers for their participation in the planning and review of this book: Kenneth W. Scoggins, vice president, Investment Division, Fidelity Bank, Oklahoma City, Oklahoma; Michael L. Ryan, senior vice president, American Security Bank, Washington, D.C.; and Robert T. Foley, president, Citizens State Bank, Roseau, Minnesota.