1) Goals:
The aim of the course will help students to understand the:
· Various banking activities and financial statement structures
· Way banks function and are able to generate value
· Risks faced by banks and their measurement
· Banking regulation and risk management in light of the recent credit crunch
· Current regulatory challenges and the impact on the banking business conduct
· Risk management governance and enterprise risk management
2) Course outline:
a. UNDERSTANDING BANKING FINANCIAL STATEMENT STRUCTURE
MANDATORY: BEFORE THE SESSION PREPARE THE BANKING DETECTIVE CASE.
· Understanding a financial institution business model
o Understanding the funding of a bank (equity, debt, wholesale funding, deposits, repo,..)
o Understanding the revenue producing activities of a bank (consumer loans, mortgage loans, long term investment, securitization, banking and trading books, asset financing, etc…)
o Understanding the differences between the different types of financial institutions (retail bank, saving and postal banks, investment bank, hedge fund, UCITS funds, insurance, microfinance institutions, consumer credit institution etc…)
o Understanding the risks faced by a financial institution
b. UNDERSTANDING RISKS IN BANKING OPERATIONS, THEIR SOURCES ANS IMPACTS
KEY LEARNING POINTS AND SESSION OUTLINE
The following items will be discussed:
· Definition of risk
o What are the different types of risks?
o What is the importance of theses risk for a bank?
· Measurement of risk
o What are the different measures of risk?
o What do they really measure (uses and pitfalls)
o What is normal? What is extreme?
· Risk management (first overview)
o What is risk management about?
o What does it imply in terms of organization and performance?
c. STRATEGIC RISK: A VALUE CREATION PERSPECTIVE
MANDATORY: KAUPTHING CASE STUDY TO BE PREPARED IN GROUP (PPT deliverable)
KEY LEARNING POINTS AND SESSION OUTLINE
Based on various examples, the following items will be discussed:
· Where does the bank value come from?
· What does the bank value consist of?
o Distinction between profit and free cash-flows
o Liquidity vs. solvency vs. company’s value
o What are the differences between profit and value creation?
o Why generating profits does not imply getting cash-inflows?
· What are the key challenges of Basel II/III regarding bank’s performance?
o What are the uses and pitfalls of Basel Accords?
o What is (and is not) the role of regulatory/economic capital?
o What are the uses and pitfalls of Basel Accords?
· Strategic risk: Back to value thinking
o How to manage value in a sustainable way?
§ What to do when actual growth is below the sustainable growth?
§ What to do when actual growth is above the sustainable growth?
o What are the key lessons in managing growth? Lessons from top 50 world banks
· What are the impacts of Basel II/III on business conducts for financial institutions?
· What are the key challenges of Basel II/III for a fast growing financial institution?
o What are the uses and pitfalls of Basel Accords?
· Event vs. Cause-effect approach when managing risks
· Lessons learnt from the current crisis: case studies
d. ENTERPRISE RISK MANAGEMENT IN BANKING: BUILDING UP A RISK MANAGEMENT FRAMEWORK
KEY LEARNING POINTS AND SESSION OUTLINE
Focus on the impact of governance and reporting structure on the efficiency of risk management in financial institutions. An effective enterprise risk management includes:
· Strategy and risk appetite
· Risk policies & use test
· Modelling & data collection processes
· Stress test
· Organisational challenges & functional components of ERM framework
· Compliance and governance
· Roles and responsibilities regarding risk management of:
o The Board, Executive committee
o Internal controls
o Risk management
o Business development
o Sales people
o HR
- Lessons learnt from the current crisis: case studies