BANK3011 COURSE NOTES

Description

BANK3017 Course Notes Number of Weeks Covered: Weeks 1–12 (Week 8 not included in notes) Total: 11–12 lectures WEEKLY TOPICS COVERED Week 1 – Foundations of Financial Intermediation - Role of financial intermediaries (FIs) - Liquidity and price risk - Primary vs secondary securities - Asset transformation - Agency costs and delegated monitoring - Diversification - Inside vs outside money - Types of financial institutions (including ADIs) - Covered bonds Week 2 – Deposit-Taking Institutions - Bank balance sheets - Net Interest Margin (NIM) and spreads - Off-balance-sheet items - Core deposits - Major bank risks (interest rate, credit, liquidity, market, FX, operational, insolvency) - Technology risk Week 3 – Interest Rate Risk - Repricing gap (CGAP = RSA – RSL) - Rate-sensitive assets and liabilities - Refinancing risk and reinvestment risk - Duration, modified duration, dollar duration - Duration gap (DA – kDL) - Convexity - Book vs market value accounting Week 4 – Credit Risk - Types of loans (commercial, real estate, consumer) - Retail vs wholesale credit decisions - Expected return on loans - Default risk - Credit scoring models (linear probability, logit, Z-score) - Migration analysis - RAROC Week 5 – Liquidity Risk - Liability-side liquidity risk (deposit withdrawals) - Asset-side liquidity risk (loan commitments) - Purchased vs stored liquidity - Financing gap (Loans – Core deposits) - Liquidity Coverage Ratio (LCR) - Net Stable Funding Ratio (NSFR) Week 6 – Market Risk - Trading vs investment portfolios - Value at Risk (VAR) - RiskMetrics (variance-covariance model) - Historical simulation - Monte Carlo simulation - Expected shortfall - Daily Earnings at Risk (DEAR) Week 7 – Operational Risk - Risk from people, systems, processes, external events - IT risk and cybersecurity risk - Third-party/vendor risk - Data management risk - Three lines of defence - Economies of scale and scope Week 9 – Derivatives and Hedging - Spot, forward, and futures contracts - Mark-to-market - Micro vs macro hedging - Duration gap hedging using futures - Swaps - Regulatory oversight of derivatives Week 10 – Loans and Securitisation - Loan sales (with and without recourse) - Participations vs assignments - Asset securitisation - Pass-through securities - Prepayment risk - PSA prepayment model - Duration and liquidity risk reduction Week 11 – Liability and Liquidity Management - Managing liquid asset portfolios - Reserve requirements - Securities portfolio management - Funding structure decisions Week 12 – Capital Adequacy - Book value vs market value - Basel III framework (Pillars 1–3) - CET1, Tier I, Tier II capital - Minimum capital ratios - Leverage ratio MAIN THEMES OF THE COURSE Interest Rate Risk Credit Risk Liquidity Risk Market Risk Operational Risk Hedging with Derivatives Securitisation Capital Regulation (Basel III) CORE TEXTBOOK REFERENCE Financial Institutions Management: A Risk Management Approach – Saunders & Cornett