Financial Intermediation - Risks in

Banking

2013-2014

Learning outcomes (Chapter 3)

2

FINANCIAL INTERMEDIATION

RISKS IN BANKING

2013 Lillibeth Ortiz

Contents

Clearly describe and examine the variety

and complexity of risks facing banks using
given standard classifications
Forcefully illustrate and discuss the need for
effective risk management tools and
systems in the banking industry
Broadly explain the fundamental aspects of
risk measurement in financial institutions
Accurately demonstrate how to estimate
the market risk of a given investment using
the Value at Risk methodology

Questions

A.
B.
C.
D.
E.
F.
G.
H.
I.

Overview of Risks
Market Risk
Foreign Exchange Risk
Country Risk
Off balance sheet risk
Solvency Risk
Operational Risk
Past Year Exam Questions
References

What is risk?

How are banks exposed to risks?

Recall

Is it the same as uncertainty? Or exposure?

Why/How are banks exposed to risks?

How are banks risks classified?

What are banks major risks?

Example: Bank Balance Sheet

6

Surplus Units
(net savers)

Deficit Units
(net borrowers)

Cash

Deposits
(Short-term, Liquid, Small
denomination, Low Risk)

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Debt
FI
(Long-term, Illiquid, Large
(asset
transformers) Denomination, High Risk)
Cash

ASSETS
(e.g., loans)

LIABILITIES
(e.g., deposits)

Long Term
Fixed Rate

Short Term
Floating Rate

Illiquid

Liquid

China
USD

Singapore
SGD

Financial Intermediation - Risks in

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2013-2014

How are banks exposed to risks?

7

How are banks exposed to risks?

8

Many risks arise for banking due to

_________ _________

The business of banking involves risk.

Banks are _________ _________

To

When

maturities on assets exceed those of

liabilities
When interest rate terms on items on either side
of the balance sheet differ
If the international nature of each side of the
balance sheet is not country-matched

They

take risks, they transform risks, they

embed risks in banking products and services.

But banks that take excessive risks will get in

trouble.
Thus,

the key to a banks performance is

effective measurement & management of
risks

Matching is virtually impossible and would

severely limit the banks profit opportunities.

How are banks risks classified?

9

make profits, banks need to take risks.

How are banks risks classified?

10

Banking risks can be defined and classified

in many ways

Financial

vs non-financial (operational risk)

relating to the balance sheet of the
bank (credit, liquidity and interest rate risks) vs
risks relating to trading activities (market risk)
Risks by focus local vs global

Risks

Banking

book or investment portfolio

Lending, borrowing

activities
& liabilities that are relatively illiquid and
held for longer periods
Customers: non-financial corporations,
individuals
Assets

Discrete Risks
E.g.,

effects of war or terrorist acts, market

crashes, theft, malfeasance, regulatory
changes

Illustration: Banking Book

11

Distinction between Investment Book and

Trading Book of a commercial bank
2 books or portfolios of the bank

How are banks risks classified?

12

Banking Book
Assets

Liabilities

Trading

book

Trading

transactions

Proprietary trading bank is trading for itself, taking

positions to make gains
Trading for third parties sold to clients

Assets,

liabilities & derivatives can be quickly

bought or sold on organized financial markets
Customers: corporations, financial institutions

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Financial Intermediation - Risks in

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2013-2014

Illustration: Trading Book

13

Question
14

Trading Book
Assets

Liabilities

How are banks risks classified?

15

Exercise:
think-pairshare

What are the 2 main differences between

the investment book and the trading book
of a bank?

What are banks major risks?

16

Risks cannot be easily isolated. The different

types of risk are _________ ______ and there
are inter-dependencies in risks. E.g.,

1.
2.
3.

Interest

rates and credit risk

Interest rates and derivative counterparty risk
Off balance sheet risk with other risks
All risks with solvency risk

4.
5.
6.
7.
8.
9.

Market Risk background

17

Credit risk
}
To be
Liquidity risk
}
discussed
Interest rate risk
}
later
Market risk
Foreign exchange risk
Country or sovereign risk
Off-balance sheet risk
Solvency risk
Operational & technology risk

Market Risk background

18

Market risk is incurred in trading of assets

and liabilities (and derivatives).

How do you make money in trading?

Trading

book: banks actively trade assets,

liabilities and derivatives rather than hold
them for longer-term investment, funding or
hedging purposes

Heavier focus on trading income over

traditional activities increases market
exposure.

Source: Saunders & Cornett, Financial Institutions Management, 2008

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Financial Intermediation - Risks in

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2013-2014

Illustration

Citigroup Stock (Oct 2009)

19

Example

20

Have US$ 46,000 to invest

Decide to invest in Citigroup stock

Citigroup Stock (2007-2009)

Example

21

Exercise
22

Open /
Liquidation
Price
Unhedged
Action
Expectation
Position

Exercise:
think-pairshare
Price
Risk

LONG

SHORT

Market Risk description

23

Market Risk description

24

Risk of loss associated with adverse

deviations in the value of the trading
portfolio, which arises through fluctuations in
market prices
E.g.,

interest rates, equity prices, foreign

exchange rates or commodity prices

Risk of adverse deviations of the mark-tomarket value of the trading portfolio due to
market movements, during the period
required to liquidate the transactions (Bessis,

_________ ________ period: time required to

effect transaction is critical to assess
adverse deviations
The

longer the liquidation period, the greater

the potential deviation from current market
value
Varies with the type of instrument
Set by regulators in measuring market risk

2010)

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Financial Intermediation - Risks in

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2013-2014

Market Risk description

25

Market Risk description

26

Given a liquidation period, important

components of market risk are:
_________

of asset price

The

higher the volatility, the greater the

potential deviation in the value, the higher the
market risk

_________

Interest rate risk and foreign exchange risk

affect market risk (change prices)

of the asset

Deficiency in monitoring the market

portfolio is an operational risk, rather than a
pure market risk

With

low transaction volume, the greater the

potential deviation in the value, the higher the
market risk
When liquidity is high, lower volatility within a
given horizon

Examples: Trading Losses

27

Examples: Trading Losses

28

Several huge losses associated with trading

activities:
Barings Bank (1995)

Wrong-way

bets on natural gas led to a pretax loss of about $680 million.

Lost

US$ 1.3bn through Nick Leeson & decline

in Nikkei Stock Market Index

Sumitomo Corp (1996)

AllFirst/ Allied Irish (2002)

Lost

Socit Gnrale (2008)

Lost

4.9 billion euros ($7.2 billion) before taxes

after trader went beyond permitted limits on
European stock index futures. (highest so far)

$2.6 billion in commodity futures trading

Source: seekingalpha.com

trader hid $691 million in currency market

losses

Market Risk Implications

29

Bank of Montreal (2007)

Questions
30

Emphasizes importance of:

Measurement

of exposure
Control mechanisms for direct market risk and
employee created risks
Hedging mechanisms

How do you measure market risk?

How much can I potentially lose when
prices change?
What

is the most I can lose on this

investment?

Of interest to regulators
BIS

regulates market risk via capital

requirements

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Financial Intermediation - Risks in

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2013-2014

Market Risk Measurement

Market Risk Measurement

31

32

Market risk

Can

be measured over periods as short as

one day
Usually measured in terms of dollar exposure
amount or as a relative amount against some
benchmark

Regulatory (Capital) Requirements market

risk may be calculated using:
Standard

model (Bank for International

Settlements)

Generally concerned with estimated

potential loss under adverse circumstances

Internal

models using VAR (for approved

models)

Value

at Risk (VAR) model is the industry

standard

Exercise:
think-pairshare

Exercise
33

Review Questions
34

Conceptually, an FIs trading portfolio can be

differentiated from its investment portfolio
by
a. liquidity.
b. time horizon.
c. size of assets.
d. interest rate fluctuations.
e. Answers A and B only.

Indicate if there would be more or less

market risk if the following were HIGHER, all
else being equal:
Liquidation

period

Volatility
Liquidity

(transaction volume)

True or False?
35

True or False?
36

Market risk is the uncertainty of an FIs

earnings resulting from changes in market
conditions such as interest rates and asset
prices.
Income from trading activities of FIs is less
important today than the traditional
activities of banks.
Assets and liabilities that are expected to
require extensive time to liquidate are
normally placed in the investment portfolio.

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Active trading of assets and liabilities

creates market risk.
Market risk is present whenever an FI takes
an open position and prices change in a
direction opposite to that expected.

Financial Intermediation - Risks in

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2013-2014

Foreign Exchange Risk

Background

Questions
37

38

Why do business overseas?

What are the risks in doing business
overseas?

Given

that returns on domestic and foreign

investments are not perfectly correlated,
there are benefits in making direct and
portfolio investments overseas.

Foreign Exchange Risk

Background
39

The ability to raise funds from internationally

diverse sources presents opportunities as
well as risks

Undiversified foreign expansion creates FX

risk.

Foreign Exchange Risk

Background
40

Globalization of financial markets has

increased foreign exposure of most banks

Both in banking and trading books:

Bank

may have assets or liabilities

denominated in foreign currency (in addition
to direct positions in foreign currency).
Basically 4 trading activities:

Trading

foreign currencies
Making foreign currency loans
Buying foreign issued securities
Issuing foreign denominated debt

Purchase

and sale of currencies to complete

international transactions.
Facilitating positions in foreign real and
financial investments.
Accommodating hedging activities
Speculation

http://www.dbs.com/ratesonline/Pages/fxbr

a.aspx

Foreign Exchange Risk Sources

41

Exercise
42

Substantial risk arises via taking open

positions in currencies.
may be net long or net short in various
currencies

A U.S. FI. has the following foreign currency

positions:

FI

Sources of FX Risk
Spot

positions denominated in foreign

currency
Forward positions denominated in foreign
currency
Net exposure = (FX assets - FX liabilities) + (FX
bought - FX sold)

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Currency
Assets Liabilities
FX Bought FX Sold
UK pound 24,600
70,000
170,400
321,000
Yen 31,000
20,400
250,000
220,000

What is the FI's net exposure in British pounds?

What is the FI's net exposure in the Japanese
yen?

Financial Intermediation - Risks in

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2013-2014

Exercise (contd)

Foreign Exchange Risk Description

43

44

How would you characterize the FI's risk

exposure to fluctuations in the British pound
to dollar exchange rate?

Risk that exchange rate changes can affect

the value of a banks assets and liabilities
denominated in non-domestic currencies
Mismatches

between foreign asset and

liability portfolios

How would you characterize the FI's risk

exposure to fluctuations in the yen/dollar
exchange rate?

Returns are affected by:

Spread

between costs and revenues

Changes in FX rates

Compute

Exercise:

Exercise: Receive GBP () in futureS$

think-pairForeign Exchange Risk Description

received

share

45

In Future

Risk

Receive FCY

FCY depreciates Get

of LCY
(when
exchanged)

Jan 2009, FX rate is

S$ 2.1 /

Reason

Receive 1m worth:

Pay FCY

Jan 2008, Lent 0.95m

(S$ 2.66m @ S$ 2.8/ )

FCY appreciates Pay

in LCY
equivalent

Expect 1m (S$ 2.8m)

in Jan 2009

45

Exercise: Pay JPY () in future

Compute
S$ paid

True or False?
48

Jan 2008, Borrowed 95m

(S$ 1.235m @ S$ 0.013/ )
Repay 100m (S$ 1.3m) in
Jan 2009

Jan 2009, FX rate

S$ 0.016/
Repay 100m =

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Direct foreign investment and foreign portfolio

investment both can be beneficial to an FI
because of imperfectly correlated returns with
domestic investments.
Foreign exchange rate risk occurs because
foreign exchange rates are volatile and can
impact banks with exposed foreign assets and/or
liabilities.
An FI is net long in foreign assets if it holds more
foreign liabilities than foreign assets.
As the U.S. dollar appreciates against the
Japanese yen, U.S. goods become less expensive
to Japanese consumers.

Financial Intermediation - Risks in

Banking

2013-2014

Review Question
49

Country Risk description

50

Which of the following is NOT a source of

foreign exchange risk?

A. Trading foreign currencies.

B. Making domestic-currency loans to
foreign corporations.
C. Buying foreign-issued securities.
D. Issuing foreign currency-denominated
debt.
E. Making foreign currency loans.

Country Risk importance

51

A credit risk on obligations advanced across

borders
Risk of a crisis in a country
Risk that repayments to foreign lenders or
investors may be interrupted because of
restrictions, intervention or interference from
foreign governments
Affects ability of borrowers within a country
to meet their obligations

Country Risk 2 sub-categories

52

Important in international banking

Governments can impose restrictions on
debt repayments to outside creditors

1.

Risk of default of sovereign issuers (e.g.,

central banks, government sponsored
banks)
Credit risk of national governments & relates
to the governments ability (economic risk)
and willingness (political risk) to repay its debt
obligations
Often materializes as debt restructuring
Also includes: government actions that may
affect the ability of borrowers in that country
to pay foreign currency debts

Foreign

company may be unable to repay

even if it would like to. Loan may be forced
into default even though borrower had a
strong credit rating at origination of loan.
Legal remedies are very limited often lack
usual recourse via court system.

Sovereign Risk Examples

53

_________ _________

Sovereign defaults through history

54

Debt repudiation
WW II, only China, Cuba and North
Korea have repudiated debt.
Recent steps to forgive debts of most severe
cases conditional on reforms targeted to
improve poverty problems

GlobalPost, Thomas Mucha, September 15, 2011

Since

http://www.globalpost.com/dispatches/glob
alpost-blogs/macro/greece-defaultsovereign-debt

Rescheduling
Most

common form of sovereign risk.

Korea, 1998
Argentina, 2001
South

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Financial Intermediation - Risks in

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2013-2014

Sovereign Risk
55

Country Risk 2 sub-categories

56

In the event of restrictions, reschedulings, or

outright prohibition of repayments, FIs
remaining bargaining chip is future supply of
loans

2.

_________ _________

Impossibility to transfer funds from the

country because of local legal restrictions or
the currency is not convertible anymore

Weak

position if currency collapsing or

government failing

Role of International Monetary Fund (IMF)

Extends

aid to troubled banks

moral hazard problem if IMF
bailout expected

Increased

Country Risk implications

57

Country Risk measurement

58

Need to assess both credit quality and

country risk

Many

banks have their own unique countryrisk assessment system.

Country risk-scoring models based on
primarily economic ratios.

Country

risk is a floor for the risk of the local

borrower

If

transfers become impossible, the risk

materializes for all corporations in the country

External Evaluation Models

There

are also other (external) organisations

that offer country risk assessments/ratings.

Country Risk measurement

59

Internal Evaluation Models

True or False?
60

Examples of external evaluation models:

The

Euromoney Index

The

Economist Intelligence Unit ratings

Institutional

Investor Index

Credit

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rating agencies

Sovereign risk involves the inability of a

foreign corporation to repay the principal or
interest on a loan because of stipulations by
the foreign government that are out of the
control of the foreign corporation.
If the credit risk of the borrower is good,
then the sovereign country risk is irrelevant.
A lending decision to a firm in a foreign
country should involve both a credit risk
analysis and a sovereign risk analysis.

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Off-Balance-Sheet Activities
61

Off Balance Sheet Activities

62

Off balance sheet (OBS) activity

Does

not appear on a banks current

balance sheet
May become an actual asset/liability in
future contingent on certain events
Probability is

Striking growth of OBS activities

Contingent

assets & liabilities, e.g.,

Loan

commitments
Letters of credit
Derivative

less than 1

Forward,

positions
futures, options and swap contracts

Earns

fee income while not expanding

balance sheet

OBS activities are frequently a source of fee

income, especially for the largest most
credit-worthy banks.

Off-Balance-Sheet Risk
63

Off-Balance-Sheet Risk examples

64

Risk incurred by a bank due to activities

related to contingent assets & liabilities
OBS activities are not always risk increasing.

Credit

rating of the borrower may deteriorate

over life of the commitment
Lending at low margins to risky customers
Funding commitments in low liquidity periods

In

many cases they are hedging activities

designed to mitigate exposure to interest rate
risk, foreign exchange risk etc.

Risks in loan commitments

During a

credit crunch, bank may find it difficult

to meet all of the commitments

Speculative activities using off-balancesheet items create considerable risk

Could

result in credit, counterparty, interest

rate, market, liquidity and operational risks

Prudential Financial Gets $3 Billion

Example
Loan Commitment
65

Off-Balance-Sheet Risk examples

66

Bloomberg By Krista Giovacco Oct 2, 2010

Risks in Letters of Credit

Credit

Documentation

http://www.bloomberg.com/news/2010-1001/prudential-financial-reports-3-billion-loancommitment.html

Political

risk

Risks in swaps
Interest

rate or foreign exchange

Counterparty
Legal

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Financial Intermediation - Risks in

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Off-Balance-Sheet Risk regulations

67

Review Question
68

BIS Basel rules require banks to convert OFFB/S activities to ON B/S equivalents & hold
capital against these activities

Where are the contingent items disclosed in

the financial statements?
1.

Changes in regulations controlling

derivatives in 2009
Role

2.

of credit default swaps in financial crisis

3.
4.
5.

Review Question
69

A. On the assets side of the balance sheet.

B. On the liabilities side of the balance
sheet.
C. As footnotes to financial statements.
D. In the income statement.
E. In the director's report.

True or False?
70

Loan commitments are classified as

1.
2.
3.
4.
5.

A. on-balance-sheet assets.
B. off-balance-sheet assets.
C. off-balance-sheet liabilities.
D. on-balance-sheet liabilities.
E. equity capital.

Question
71

Contingent claims are assets and liabilities

that will come into existence at a future
time often at the insistence of a customer or
second party.
OBS risk is the risk that fee-earning business,
such as offering guarantees, will lead to
losses through the failure of counterparties
to carry out their obligations.
OBS risk is the volatility in income or in the
market value of equity that may arise from
unanticipated losses due to OBS activities.

Solvency Risk
72

What is the ultimate risk the mother of all

risks, the risk that regulators fear the most?

Risk of insufficient capital to offset sudden

decline in value of assets to liabilities.
Risk of being unable to absorb losses,
generated by all types of risks, with the
available capital (Bessis)
Related

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to net worth and capital base

Original cause may be excessive interest

rate, market, credit, off-balance-sheet,
technological, FX, sovereign, and liquidity
risks.

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Solvency Risk
73

Illustration: 2 banks
74

Balance Sheet

Capital adequacy

Assets

minimum

capital that allows a bank to sustain

the potential losses arising from all risks and
complying with a solvency level

Impaired

Liabilities

by incurred losses

Resulted in

major capital injections by

governments in the financial crisis

75

As the global financial crisis has worsened, the

number of firms to crumble or be bought out
has increased

True or False?
76

A lower level of equity capital increases the

risk of insolvency to a financial institution.
Many of the various risks faced by an FI
often are interrelated with each other.

Source: BBC

Questions
77

Operational Risk background

78

What are the other sources of uncertainty /

potential losses in banking?
What about non-financial risks?
What else can go wrong?

Economies
Economies

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Bank must optimize resources to increase

revenues and reduce costs.
of scale
of scope

Technological innovation has seen rapid

growth

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Operational Risk description

79

Operational Risk description

80

Risk of losses resulting from inadequate or

failed internal _________ _________ _________

information system,
systems,
internal risks monitoring rules and internal
procedures designed to take timely
corrective actions, or
the compliance with the internal risk policy
rules

_________ _________ _________(Bank for International

Settlements)
Some

reporting

include reputational and strategic risk

Arises from shortcomings or deficiencies at

either a technical level or at an
organizational level
Event Risk

Losses

magnified since they affect reputation

and future potential

Operational Risk Sources

81

Results from malfunctions of the:

As a result, some risks may be ignored, do

not trigger corrective action, can result in
disasters

Operational Risk Technology

82

Technology

Employees

Customer relationships

Capital assets

External

Risk that technology investment fails to

produce anticipated cost savings.
Risk that technology may break down.
Programming

error
risk
Mark-to-market error
Management information
IT/Telecomm systems outage
Technology provider failure
Contingency planning
Model

Source: Saunders & Cornett, Financial Institutions Management, 2008

Recall

Operational Risk Technology

83

Glitch cripples largest ATM network

84

Efforts to expand consumer acceptance of

web-based services frustrated by scams

(Tue, Jul 06, 2010, my paper By Rachel Chan)

Phishing

SINGAPORE'S biggest bank has apologised for

what is believed to be its biggest lapse in
service so far.
DBS, which has over four million users and 81
branches, said yesterday that it detected
"technical difficulties" at 3am yesterday,
which disrupted its services for seven hours.

Spoofing

FIs

Identity

messages purported to be from

theft concerns

Vulnerability of online credit card usage

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Financial Intermediation - Risks in

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Singapore bars 10 firms from sellingExample

structured notes

Operational Risk Employees

85

86

SINGAPORE: The Monetary Authority of Singapore

(MAS) has, for the first time, imposed bans on the
sale of structured notes by 10 financial institutions
(FIs) which had distributed toxic structured notes
linked to the collapsed US financial institution
Lehman Brothers.
Source: By Lee Siew Hoon, Channel NewsAsia |
Posted: 07 July 2009

Employees
Turnover
Key

personnel

Fraud
Errors
Rogue

trading (Barings, Allied Irish/Allfirst)

laundering
Confidentiality breach
Money

http://www.mas.gov.sg/news_room/press_releases/2
010/MAS_Lifts_Ban_on_the_Sale_of_Structured_Note
s_for_DBS_Bank_Malayan_Banking_and_RBS.html

Revelation of ethical problems via email

exchanges

Operational Risk Customer

Relationship

An obvious clerical error, says DBS

of "credit event" calculation

87

88

SINGAPORE: There was an error in the formula that

investors were told would be used to calculate any
remaining value in their investments should there be
a "credit event".

Contractual disagreement
Dissatisfaction from poorly performing
technology
Default

Source: channelnewsasia.com, 01 Sept 2009

Exercise:

which is the
Credit Event Redemption Amount
correct
formula?

89

= (aggregate principal
amount) x
(the final price)

= (aggregate principal
amount) x
(1 - the final price)

Operational Risk Capital Asset

90

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Safety
Security
Operating costs
Fire/flood

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Safe Deposit Box Incident

91

Operational Risk External

92

Hong Kong, October 29, 2004

A DBS Bank (Hong Kong)'s internal investigation into

the incorrect removal and destruction of 83
customer safe deposit boxes at its Mei Foo branch
found that a combination of human error,
inadequate project oversight and the lack of
formalised procedures for safe deposit box
removal, contributed to the extremely regrettable
incident.

External fraud
Taxation risk
Legal risk
War
Market collapse
Reputation risk
Relationship risk

Source: DBS News Release

Operational Risk Implications

93

Operational Risk Regulatory Issues

94

Need to control and manage potential

losses

Basel II allows for 3 approaches to compute

capital for operational risk:

Training,

development, review of employees

Planning, organization, back-up
External insurance
FI capital

Basic

Indicator Approach

Standardized
Internal

Approach

Measurement Approach

Difficult to measure / model

Review Questions
95

Review Question #1
96

1.

2.

3.

_________ risk relates to risk of loss

associated with adverse deviations in the
value of the trading portfolio
_________ risk is associated with the risks of
incurring financial losses resulting from the
inability and/or unwillingness of borrowers
within a country to meet their obligations
_________ risk relates to the risk of having
insufficient capital to cover losses
generated by all types of risks

Lillibeth Ortiz

What type of risk focuses upon mismatched

currency positions?
1.
Liquidity risk.
2.
Interest rate risk.
3.
Credit risk.
4.
Foreign exchange rate risk.
5.
Off balance sheet risk.

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Review Question #2
97

Review Question #3
98

What type of risk focuses upon future

contingencies?
1.
Liquidity risk.
2.
Interest rate risk.
3.
Credit risk.
4.
Foreign exchange rate risk.
5.
Off balance sheet risk.

Politically motivated limitations on payments

of foreign currency may expose the FI to
1.
sovereign country risk.
2.
interest rate risk.
3.
credit risk.
4.
foreign exchange risk.
5.
off balance sheet risk.

Review Question #4

Review Question #5

99

100

The risk that a debt security's price will fall,

subjecting the investor to a capital loss is
1.
credit risk.
2.
political risk.
3.
currency risk.
4.
liquidity risk.
5.
market risk.

Which of the following would you typically

find in the trading portfolio of an FI?
1.
Cash, loans, and deposits
2.
Premises and equipment
3.
Relatively illiquid assets
4.
Assets held for long holding periods
5.
Bonds, equities, and derivatives

Past Year Exam Questions

101

Reading
102

Excess risks can be regulated by linking a

banks capital to the risk held in its assets.
Identify the main sources of risks in
commercial banking and explain the
principles of capital adequacy regulation.
(2009, Zone B)
Explain the risk management process in
banks, and critically analyse the Value-atRisk approach to risk measurement. (2010,
Zone A)

Lillibeth Ortiz

Essential:
Saunders:

chapters 7, 10 and 16

Further:
Bessis:

chapters 3,4,15-18
& Thompson: Chapter 13, sect 13.1,
13.2, 13.4 and 13.6.

Matthews

17