Objectives

Course objective: This course will focus on the financial management and regulation of financial institutions, with a primary focus on commercial banks. Students should be able to comprehend the various forms of risks faced by intermediaries and the trade-offs required in order to balance portfolio risks and returns. The focus will be on the modern techniques of asset, liability and risk management, with an eye towards the regulatory issues on capital adequacy, deposit insurance and risk-shifting as they affect the safety and soundness of the financial system.

At times, we will hear from practitioners in the banking industry, academics, as well as economists in central banks and international organizations who have studied or worked in the management of financial risks.

This knowledge provides a sound basis for working in and/or doing research on financial institutions and financial regulation.

Contents

Main topics:

• Why are financial intermediaries special? Some recent changes
• Depository institutions
• Non-depository financial institutions
• Interest rate risk
• Market risk
• Credit risk
• Concentration risk
• Liquidity risk
• Insolvency risk
• Other types of risk: geographical, etc.
• Securitization and financial crises
• Regulation
• FinTech

Grading: Your grade will be determined by the following:

• Presentation 30%
• Class participation 10%
• Final exam 60%

References

Course textbook:

1. Financial Institutions Management: a Risk Management Approach by Anthony Saunders and Marcia Cornett, Irwin-McGraw Hill, 5e, 2005. Good overview of risk management.

Other useful textbooks:

• Risk Management and Financial Institutions, by John C. Hull, Wiley, 3e, 2012
• Options, Futures and Other Derivatives by John C. Hull, Pearson Prentice Hall, 6e, 2006. Good reference for derivatives but too light on credit risk.
• Value at Risk by Philippe Jorion, McGraw Hill, 3e, 2007. Very focused on VaR, and too light on credit risk.
• Fixed Income Securities by Bruce Tuckman, Wiley, 2e, 2002. Best reference for fixed income. But nothing on credit risk.
• Credit Risk Modeling by David Lando, Princeton University Press, 2004. Good overview of theory and data, but advanced mathematics required.

If you are interested in how government and central banks react to financial crisis, the best notes are on David Romer’s website: “Short-Run Fluctuations” available on his website at Berkeley (http://elsa.berkeley.edu/~dromer, version January 2013).

I will also assign some:

• Financial Stability Reports (from various years), Swiss National Bank (as well as othercentral banks or IMF)
• Basel Committee on Banking Supervision (BCBS) documents.
• Research papers where appropriate (tba).

Subject to change.

Pre-requisites

Basic knowledge of a bank's balance sheet, basic mathematical skills, experience with Excel spreadsheets.

Evaluation

First attempt

Exam:

Written 2h00 hours

Documentation:

Allowed with restrictions

Calculator:

Allowed

Evaluation:

Exam:

• The final exam is mandatory and required to pass the course.

• Documentation restricted: 1 double sided cheat sheet. All calculators allowed.

Retake

Exam:

Written 2h00 hours

Documentation:

Allowed with restrictions

Calculator:

Allowed

Evaluation:

Exam:

• The final exam is mandatory and required to pass the course.

• Documentation restricted: 1 double sided cheat sheet. All calculators allowed.