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Centre for Financial and Management Studies (CeFiMS)

Bank Financial Management

Course Code:
C222|C322
Unit value:

Introduction

This course concentrates on the principles of bank management of assets and liabilities. The course has an applied feel to it as it mainly focuses on the microeconomic problems of financial management of banking firms. You will learn about the principles of bank balance sheet management and money market operations as well as liquidity ratios and capital adequacy ratios. You will also study issues of bank supervision and regulation.

Resources

Study Guide

You will receive a looseleaf binder containing eight 'course units'. The units are carefully structured to provide the main teaching, defining and exploring the main concepts and issues, locating these within current debate and introducing and linking the further assigned readings. The unit files are also available to download from the Online Study Centre.

Textbook

Timothy Koch and S. Scott MacDonald, (2010) Bank Management, Seventh Edition, Thomson South-Western

Readings

You will receive a volume of Readings, which is a compilation of recently published articles or seminal writings which augment and illustrate the main text.

Online Study Centre

You will have access to the OSC, which is a web-accessed learning environment. Via the OSC, you can communicate with your assigned academic tutor, administrators and other students on the course using discussion forums. The OSC also provides access to the course Study Guide and assignments, as well as a selection of electronic journals available on the University of London Online Library.

Objectives and learning outcomes of the course

This course examines the role and importance of bank financial management to the modern bank. It teaches the basic models of financial management taught by University Economics Departments and Business Schools, which were constructed from the experience of mature capitalist economies. The course discusses the various trends shaping banking markets, such as institutionalisation, securitisation, globalisation and concentration.
When you have completed this course, you will be able to:

  • discuss trends affecting the whole financial services industry
  • assess the implications of change for bank risk management
  • outline how the behaviour of banks has been modelled
  • identify the risks facing bank financial managers
  • explain the need to adapt risk management procedures to an increasingly international financial system
  • discuss how interest-rate risk can be managed using hedging activities through the use of financial derivatives and securitization
  • explain why funding mix and costs are important to bank management when making loan and investment decisions
  • discuss how credit risk and default premiums are assessed and monitored
  • analyse the relationship between bank performance and capital adequacy

Scope and syllabus

Course Units

Unit 1: Banking Innovations and Risk

  • 1.1 Introduction
  • 1.2 Bank Management and Bank Financial Management
  • 1.3 'The good old days': A Simple Balance Sheet View of Banking
  • 1.4 The Transformation of Banking - 1970 to 2007
  • 1.5 Financial Innovation
  • 1.6 Implications of Banking Innovations for Bank Financial Management
  • 1.7 An Assessment of Credit Risk Transfer
  • 1.8 Conclusion

Unit 2: Bank Accounts: A Useful Tool if Handled with Care

  • 2.1 Introduction
  • 2.2 The Bank's Balance Sheet: An Introduction
  • 2.3 The Bank's Income Statement
  • 2.4 Fair Value and Mark-to-Market Accounting: A Hot Topic with Real Potential Effects
  • 2.5 Conclusion

Unit 3: Bank Valuation

  • 3.1 Introduction
  • 3.2 The Functions of Bank Financial Managers
  • 3.3 The Risks Facing Bank Financial Managers
  • 3.4 The Value of the Banking Firm
  • 3.5 The Difference Between Market and Book Value
  • 3.6 Performance Analysis Using Financial Ratios
  • 3.7 Conclusion

Unit 4: Bank Risk Management - Liquidity Management

  • 4.1 Introduction
  • 4.2 Bank Risk Management
  • 4.3 Concepts of Liquidity and Solvency
  • 4.4 Sources of Liquidity
  • 4.5 Measuring Banks' Liquidity
  • 4.6 Practical Liquidity Management
  • 4.7 Payments System Risk and its Potential Impact on Bank Liquidity
  • 4.8 Conclusion

Unit 5: Bank Risk Management - Interest Rate Risk Management

  • 5.1 Introduction
  • 5.2 Interest-Rate Risk Management
  • 5.3 GAP Analysis
  • 5.4 Duration Analysis
  • 5.5 Hedging Interest Rate Risk Off Balance Sheet
  • 5.6 Conclusion

Unit 6: Cost of Funds and the Funding of Operations

  • 6.1 Introduction
  • 6.2 Measuring the Cost of Funds
  • 6.3 A Note on the Cost of Capital
  • 6.4 Using Cost of Funds Measures
  • 6.5 Risks Associated with Raising Funds
  • 6.6 Funding Planning and Co-ordination
  • 6.7 Review Exercise
  • 6.8 Conclusion

Unit 7: Bank Risk Management - Credit Risk

  • 7.1 Introduction
  • 7.2 Credit Risk
  • 7.3 Credit Risk and Default Premiums
  • 7.4 Loan Administration: General Procedure
  • 7.5 Credit Assessment
  • 7.6 Loan Pricing
  • 7.7 Problem Loans
  • 7.8 Conclusion

Unit 8: Capital Management

  • 8.1 Introduction
  • 8.2 Main Components of Bank Capital
  • 8.3 Risk-based Capital Requirements
  • 8.4 Basel and EU Capital Adequacy Rules
  • 8.5 European Bank Capital Adequacy: A Breif Overview
  • 8.6 Study Exercise International Capital Adequacy
  • 8.7 Impact of Capital Adequacy
  • 8.8 A Note on Capital Planning and Dividend Management
  • 8.9 Conclusion

Method of assessment

You will complete two assignments, which will be marked by your course tutor. Assignments are each worth 15% of your total mark. You will be expected to submit your first assignment by the Tuesday of Week 5, and the second assignment at the end of the course, on the Tuesday after Week 8. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Online Study Centre. You will also sit a three-hour examination on a specified date in October, worth 70% of your total mark. An up-to-date timetable of examinations is published in April of each year.