BAN 502 Financial Institutions Management

Unit title: Financial Institutions Management
Unit code: BAN502

Credit points: 8cp
Unit description: This module focuses on the critical management of risks and
maximization of returns in the roles and activities of modern financial
intermediaries in an industry where competition is becoming more
globalized. The central theme is that the risks faced by financial
institutions managers and the methods and markets through which these
risks are managed are becoming increasingly similar whether an
institution is chartered as a commercial bank, a savings bank, an
investment bank, or an insurance company. Initially we will cover
issues related to the present activities of commercial banking and then
consider the rapidly diminishing barriers between different types of
financial intermediaries with the introduction of new financial
innovation, modern technology, improved taxation and stricter
regulations. In particular, we will explain why financial intermediaries
exist and what economic roles they play, the risks faced by commercial
banks in the lending process and with the introduction of new products
arising from off-balance sheet banking, asset securitization, deposit
insurance and international banking, against a backdrop of bank
regulation, new global trends and the future of the financial services
industry. We will consider recent developments in structured finance
and the use of special purpose entities. This unit will raise issues
centered on the changing commercial environment of financial
institutions with particular reference to the strategic management of
banks stressing on efforts to develop an analytical and decision
making framework for policy formulation, implementation and review.
Unit objecties: This unit is designed to enable students to
!no"ledge
1. Develop a thorough knowledge of a countrys financial system.
2. Understand how to assess performance of a financial institution.
3. Interpret the concepts of risks and returns in financial institutions.
#$ills
!. "ocus on general financial and banking principles in articulating
sources of returns in financial institutions and to offer practical ideas
for deriving them in different contexts
#. Identify the sources of risk in financial institutions and offer
practical tolls and methods for managing such risk
$. %ustify the pricing decisions of financial institutions based on
shareholder values.
!
%alues&Attitudes
!. &ritically appreciate the theories and applications of financial
intermediation in an economy
#. 'phold the aims and ob(ectives of regulating financial institutions
and be able to determine its effects on the industry
$. )rofessionally evaluate the management of financial performance in
a financial institution.
Unit outcomes: 1. *e able to understand the nature and process of activities in a
financial institution and its overall strategy, so as to gain insight
regarding its ma(or decisions.
2. *e able to identify important trends in the banking and financial
industry.
3. Be able to assess the impact of interactions and intermediation
efforts with businesses on the financial and business performance of
the financial institution
4. *e able to actively use modern +uantitative and analytical methods
for bank management activities and be able to identify workable
solutions
5. To critically understand the issues behind the insolvencies and
failures of financial institutions
'eadings: 'ecommended te(ts
!. ,nthony -aunders ,., &ornett .. .. / )atricia ,. 0#1123,
"inancial Institutions .anagement , 4isk .anagement ,pproach,
$
rd
5dition, .c6raw-7ill 4yerson
#. 7ogan, W., ,vram, 8.%., *rown, &., 9e6abriele, 4., 4alston, 9.,
-kully, .., 7empel, 6., -imonson, 9. / -athye, .. 0#11:3
.anagement of "inancial Institutions #
nd
5dition, %ohn Wiley
$. -aunders, ,. / &ornett .. .. 0#1123, "inancial Institutions
.anagement , 4isk .anagement ,pproach, ;th 5dition,
.c6raw-7ill International
:. -aunders ,. 0#11#3, "inancial Institutions .anagement , .odern
)erspective, $
rd
5dition, .c6raw-7ill International
#
#upplementar) readings
!. .adura, %., 0!<<=3, "inancial markets and institutions, West.
#. 7effernan, -., 0!<<23, .odern banking in theory and practice,
%ohn Wiley / -ons
$. -aunders, , and >ange, 7, 0!<<;3, ?"inancial Institutions
.anagement , .odern )erspective?, Irwin, ,rtarmon.
:. 7empel, -imonson and &oleman, 0!<<:3, *ank management, :th
5dition, Wiley
2. 9ewatripont, .. / Tirole, %., 0!<<$3, )rudential regulation of
banks, .IT.
=. -hanmugan, *., Turton, &. / 7empel, 6. 0!<<#3, *ank
management, %ohn Wiley / -ons
@. 6raddy, 9. *. / -pencer, ,. 7. 0!<<13, .anaging &ommercial
*anks &ommunity, 4egional and 6lobal, )rentice-7all,
5nglewood &liffs, A %.
<. *ourke, ). / -hanmugam, *. 0!<<13, ,n Introduction to *ank
>ending, ,ddison-Wesley
%ournals
!. ,sia )acific %ournal of .anagement
#. *usiness Week
$. "ar 5astern 5conomic 4eview
:. "ortune
;. "orbes
2. 7arvard *usiness 4eview
=. %ournal of .arketing
@. Aewsweek
<. -loan .anagement 4eview
!1. Time
!!. The 5conomist
$
Unit contents:
*+,IC#
-. Introduction: Financial Institutions in a Modern /conom)
*anks / other deposit-taking institutions
Insurance companies and unit trusts
Bther financial institutions
Intermediation theories and applications
&hanging nature of financial intermediation
o Trends in world banking
o Brganizational structure of banking 0conglomerates,
universal banks3
o *anking structures in industrialized countries
o &ompetitive issues 0structureCconductCperformance,
scaleCscope, efficiency3
'eadings:
-aunders, ,. / &ornett .. .. 0#1123, "inancial Institutions
2. ,er0ormance anal)sis
*ank statement analysis
4eturnCrisk profiles in banking
*ank ratings
*ank profitability and risk over the business cycle
'eadings:
7effernan, -., 0!<<23, .odern banking in theory and practice,
%ohn Wiley / -ons
:
1. Assets2liabilities management 3A4M5
-ources and cost of funding
&apital ade+uacy and capital allocation, *asel II regulation
Bff-balance sheet activity, derivatives
.anaging interest rate risk
9uration analysis, Dalue at risk models
'eading:
-aunders ,. 0#11#3, "inancial Institutions .anagement , .odern
)erspective, $
rd
5dition, .c6raw-7ill International
%ohn Wiley / -ons
6. Managing t7e loan port0olio
&redit risk and loan pricing
)ortfolio theory and lending decisions
,sset securitization
&redit rationing
4elationship lending
4estructuring and default
'eading:
5. Ne" 0orms o0 0inancing actiities
Bff-balance sheet activities
>oan commitments
-ecuritization
-tructured finance
-pecial purpose entities
>oan sales
'eading:
;
6. Measuring 'is$
4isks of "inancial Intermediation
>i+uidity 4isk
Interest 4ate 4isk 6ap ,nalysis
Interest 4ate 4isk 9uration ,nalysis
.arket 4isk
&redit 4isk
Bff-*alance -heet 4isk
"oreign 5xchange 4isk
-overeign 4isk
,ctuarial 4isk
Bperating, Technological and -ystemic 4isks
'eading:
%ohn Wiley / -ons
8. Managing 'is$
>i+uidity .anagement >iabilities and 4eserve ,ssets
9eposit Insurance and Bther >iability 6uarantees
&apital ,de+uacy
"orward &ontracts and -waps
"utures
Bptions, &aps, "loors and &ollars
&redit 4isk .anagement
>oan -ales and -ecuritization
-ervice 9iversification
'eadings:
2
%ohn Wiley / -ons
8. Managing %alues
5conomic Dalue ,dded 05D,3
4isk ad(usted )erformance .easures
4,4B&
5conomic &apital
'eading:
%ohn Wiley / -ons
6raddy, 9. *. / -pencer, ,. 7. 0!<<13, .anaging &ommercial
*anks &ommunity, 4egional and 6lobal, )rentice-7all,
5nglewood &liffs, A %.
*ourke, ). / -hanmugam, *. 0!<<13, ,n Introduction to *ank
9. Managing Corporate 'is$s
*ank 4uns
.oral 7azard
'eadings:
%ohn Wiley / -ons
=
-0. 'egulations : ;uidelines in Financing Management
*ank 4egulation The &entral *ank and its agencies
7istory
,gencies
&apital 4e+uirements
)ortfolio restrictions
*asle I and II
5conomics of prudential regulation
'eading:
%ohn Wiley / -ons
*ourke, ). / -hanmugam, *. 0!<<13, ,n Introduction to *ank >ending,
,ddison-Wesley
--. Ban$ Failures and Insolencies
5xamples of bank failure and insolvencies
o life and general insurers, health funds, banks,
superannuation funds, hedge funds
o other investment management and risk management
organizations
&auses of failure
o product design, pricing, reserving, investment, asset-
liability management, li+uidity management, reinsurance,
accounting issues, regulatory arbitrage and corporate
governance
)reventing failures and dealing with the conse+uences of
failures 0e.g. using guarantee schemes3.
'eading:
@
%ohn Wiley / -ons
*anks &ommunity, 4egional and 6lobal, )rentice-7all, A %.
-2. Ban$ Competition and M:A in t7e 0inancial sector
,nalysis of bank ./,s
)erformance effects of consolidation
International expansion
'eading:
-1. Corporate ;oernance issues
The impact of demographic diversity
5thical and environmental issues
6lobal concerns
'eading:
7effernan, -., 0!<<23, .odern banking in theory and practice, %ohn
Wiley / -ons
<
-6. #trategic Issues 0or Financial Institutions
&reating shareholder value
"actors affecting performance
&ompetition / regulation
5conomies of scale
'eading:
%ohn Wiley / -ons
*anks &ommunity, 4egional and 6lobal, )rentice-7all, A %.
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Unit title: Financial Institutions Management

Unit code: BAN502

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