Bank Management
1. Banking and the Financial Services Industry. Credit Crisis of 2007-2009. Impact on Banks and the Banking Environment. How Do Banks Differ? Trends in the Structure of U.S. Banks. Organizational Structure and Financial Services Business Models. S-Corporation Banks. Financial Services Business Models. Transactions Banking versus Relationship Business Models. Universal Banking. Different Channels for Delivering Banking Services. Branch Banking. Automated Teller Machines. Internet (Online) Banking. Call Centers. Mobile Banking. 2. Government Policies and Regulation. Historical Bank Regulation. Products and Services. Goals and Functions of Depository Institution Regulation. Ensure Safety and Soundness and Provide an Efficient and Competitive System. Supervision and Examination. New Charters. Federal Deposit Insurance. Product Restrictions: Depository Institutions versus Nondepository Institutions. Shortcomings of Restrictive Bank Regulation. Maintaining Monetary Stability and the Integrity of the Payments System. The Role of the Central Bank in the Economy: The Federal Reserve System. Monetary Policy. The Federal Reserve's Crisis Management Tools. The Role of Depository Institutions in the Economy. Efficient and Competitive Financial System. Consumer Protection. Trends in Federal Legislation and Regulation. Key Federal Legislation: 1970-1993. Key Federal Legislation: 1994-2000. Key Federal Legislation: 2001-2006. Key Federal Legislation: 2007-2008. Current Unresolved Regulatory Issues. Capital Adequacy. Regulatory Reform. 3. Analyzing Bank Performance. Commercial Bank Financial Statements. The Balance Sheet. The Income Statement. The Relationship Between the Balance Sheet and Income Statement. The Return on Equity Model. Profitability Analysis. Expense Ratio and Asset Utilization. Managing Risk and Returns. Credit Risk. Liquidity Risk. Market Risk. Operational Risk. Legal and Reputation Risk. Capital or Solvency Risk. Off-Balance Sheet Risk. Evaluating Bank Performance: An Application. Profitability Analysis for PNC in 2007. Risk Analysis for PNC in 2007. PNC's Profitability versus Risk: 2003-2007. Maximizing the Market Value of Bank Equity. Camels Ratings. Performance Characteristics of Banks by Size. Financial Statement Manipulation. Off-Balance Sheet Activities. 4. Managing Noninterest Income and Noninterest Expense. Noninterest Income. Deposit Service Fees. Noninterest Expense. Key Ratios. Which Lines of Business and Customers are Profitable? Line-Of-Business Profitability Analysis. Customer Profitability Analysis. Aggregate Profitability Results from Customer Profitability Analysis. What is the Appropriate Business Mix? Strategies for Managing Noninterest Expense. Cost Management Strategies. Revenue Enhancement. Contribution Growth. 5. The Performance of Nontraditional Banking Companies. The Financial Performance of Goldman Sachs. Goldman Sachs's Income Statement. Goldman Sachs's Balance Sheet. Key Performance Ratios. Risks Faced by Goldman Sachs. Goldman's Risk Profile. The Financial Performance of Mutual of Omaha Bank. Mutual of Omaha Bank's Risk Profile. The Financial Performance of BMW Financial Services and BMW Bank of North America. BMW Bank's Risk Profile. 6. Pricing Fixed-Income Securities. The Mathematics of Interest Rates. Future Value and Present Value: Single Payment. Future Value and Present Value: Multiple Payments. The Relationship Between Interest Rates and Option-Free Bond Prices. The Size of Coupon Influences Bond Price Sensitivity. Duration and Price Volatility. Duration as an Elasticity Measure. Measuring Duration. Duration of a Zero Coupon Bond. Comparative Price Sensitivity. Recent Innovations in the Valuation of Fixed-Income Securities and Total Return Analysis. Total Return Analysis. Valuing Bonds as a Package of Cash Flows. Money Market Yields. Interest-Bearing Loans with Maturities of One Year or Less. 360-Day versus 365-Day Yields. Discount Yields. Yields on Single-Payment, Interest-Bearing Securities. 7. Managing Interest Rate Risk: GAP and Earnings Sensitivity. Measuring Interest Rate Risk with GAP. Traditional Static GAP Analysis. What Determines Rate Sensitivity? Factors Affecting Net Interest Income. Rate, Volume, and Mix Analysis. Rate Sensitivity Reports. Strengths and Weaknesses of Static GAP Analysis. Earnings Sensitivity Analysis. Exercise of Embedded Options in Assets and Liabilities. Different Interest Rates Change by Different Amounts at Different Times. Earnings Sensitivity Analysis: An Example. Income Statement GAP. Managing the GAP and Earnings Sensitivity Risk. 8. Managing Interest Rate Risk: Economic Value of Equity. Measuring Interest Rate Risk with Duration Gap. Duration, Modified Duration, and Effective Duration. Duration Gap Model. A Duration Application for Banks. Economic Value of Equity Sensitivity Analysis. EVE Sensitivity Analysis: An Example. Earnings Sensitivity Analysis versus EVE Sensitivity Analysis: Which Model Is Better? Strengths and Weaknesses: DGAP and EVE Sensitivity Analysis. A Critique of Strategies for Managing Earnings and Economic Value of Equity Sensitivity. GAP and DGAP Management Strategies: What Are Your Bets? Interest Risk Management: An Example. Yield Curve Strategies. 9. Using Derivatives to Manage Interest Rate Risk. Characteristics of Financial Futures. A Brief Example. Types of Futures Traders. The Mechanics of Futures Trading. An Example: 90-Day Eurodollar Time Deposit Futures. Expectations Embedded in Futures Rates. Daily Marking-to-Market. Speculation versus Hedging. Speculators Take On Risk to Earn Speculative Profits. Hedgers Take Positions to Avoid or Reduce Risk. A Long Hedge: Reduce Risk Associated with a Decrease in Interest Rates. A Short Hedge: Reduce Risk Associated with an Increase in Interest Rates. Change in the Basis. Basis Risk and Cross Hedging. Microhedging Applications. Creating a Synthetic Liability with a Short Hedge. The Mechanics of Applying a Microhedge. Macrohedging Applications. Hedging: GAP or Earnings Sensitivity. Hedging: Duration Gap and EVE Sensitivity. Accounting Requirements and Tax Implications. Using Forward Rate Agreements to Manage Rate Risk. Forward Rate Agreements: An Example. Potential Problems with FRAs. Basic Interest Rate Swaps as a Risk Management Tool. Characteristics. Interest Rate Caps and Floors. Buying an Interest Rate Cap. Buying an Interest Rate Floor. Interest Rate Collar and Reverse Collar. Protecting Against Falling Interest Rates. Strategy: Use a Basic Interest Rate Swap; Pay Floating and Receive Fixed. Strategy: Buy a Floor on the Floating Rate. Strategy: Buy a Reverse Collar; Sell a Cap and Buy a Floor on the Floating Rate. Protecting Against Rising Interest Rates. Strategy: Use a Basic Interest Rate Swap; Pay Fixed and Receive Floating. Strategy: Buy a Cap on the Floating Rate. Strategy: Buy a Collar. 10. Funding the Bank. The Relationship Between Liquidity Requirements, Cash, and Funding Sources. Recent Trends in Bank Funding Sources. Characteristics of Retail-Type Deposits. Transactions Accounts. Nontransactional Accounts. Estimating the Cost of Deposit Accounts. Calculating the Average Net Cost of Deposit Accounts. Characteristics of Large Wholesale Liabilities. Jumbo CDs (CDs). Individual Retirement Accounts. Foreign Office Deposits. Borrowing Immediately Available Funds. Borrowing from the Federal Reserve. Other Borrowing from the Federal Reserve. Federal Home Loan Bank Advances. Electronic Money. Check 21. Measuring the Cost of Funds. The Average Historical Cost of Funds. The Marginal Cost of Funds. Costs of Independent Sources of Funds. Weighted Marginal Cost of Total Funds. Marginal Cost Analysis: An Application. Funding Sources and Banking Risks. Funding Sources: Liquidity Risk. Funding Sources: Interest Rate Risk. Funding Sources: Credit and Capital Risk. 11. Managing Liquidity. Meeting Liquidity Needs. Holding Liquid Assets. Borrowing Liquid Assets. Objectives of Cash Management. Reserve Balances at the Federal Reserve Bank. Required Reserves and Monetary Policy. The Impact of Sweep Accounts on Required Reserve Balances. Meeting Legal Reserve Requirements. Historical Problems with Reserve Requirements. Lagged Reserve Accounting. An Application: Reserve Calculation Under LRA. Correspondent Banking Services. Liquidity Planning. Short-Term Liquidity Planning. Managing Float. Liquidity versus Profitability. The Relationship Between Liquidity, Credit Risk, and Interest Rate Risk. Traditional Aggregate Measures of Liquidity Risk. Asset Liquidity Measures. Liability Liquidity Measures. Longer-Term Liquidity Planning. Contingency Plans. Considerations in the Selection of Liquidity Sources. 12. The Effective Use of Capital. Why Worry about Bank Capital? Risk-Based Capital Standards. The 1986 Basel Agreement. Risk-Based Elements of Basel I. What Constitutes Bank Capital? Tier 3 Capital Requirements for Market Risk under Basel I. Basel II Capital Standards. Weaknesses of the Risk-Based Capital Standards. What is the Function of Bank Capital? How Much Capital is Adequate? The Effect of Capital Requirements on Bank Operating Policies. Limiting Asset Growth. Changing the Capital Mix. Changing Asset Composition. Pricing Policies. Shrinking the Bank. Characteristics of External Capital Sources. Subordinated Debt. Common Stock. Preferred Stock. Trust preferred Stock. TARP Capital Purchase Program. Leasing Arrangements. Capital Planning. Applications. Depository Institution Capital Standards. Federal Deposit Insurance. FDIC Insurance Assessment Rates. Problems with Deposit Insurance. Weakness of the Current Risk-Based Deposit Insurance System. 13. Overview of Credit Policy and Loan Characteristics. Recent Trends in Loan Growth and Quality. Measuring Aggregate Asset Quality. Trends in Competition for Loan Business. The Credit Process. Values Driven. Current-Profit Driven. Market-Share Driven. Business Development and Credit Analysis. Credit Execution and Administration. Loan Review. Characteristics of Different Types of Loans. Real Estate Loans. Commercial Loans. Agricultural Loans. Consumer Loans. Venture Capital. 14. Evaluating Commercial Loan Requests & Managing Credit Risk. Fundamental Credit Issues. Character...