100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Samenvatting Bank Management - Martien Lamers $8.25   Add to cart

Summary

Samenvatting Bank Management - Martien Lamers

1 review
 162 views  3 purchases
  • Course
  • Institution

Summary of the slides of the lessons given by Prof. Martien Lamers (excluding exercise sessions)

Preview 4 out of 45  pages

  • December 16, 2023
  • 45
  • 2023/2024
  • Summary

1  review

review-writer-avatar

By: lunajanssens01 • 1 week ago

avatar-seller
BANK MANAGEMENT
MARTIEN LAMERS

2023-2024

,Table of Contents
1. What are banks? ........................................................................................................ 4
1.1 Balance sheet ................................................................................................................ 4
1.2 Income statement ......................................................................................................... 4
1.3 Types of banks ............................................................................................................... 4
2. Why do banks exist? .................................................................................................. 6
2.1 Financial Intermediation ................................................................................................ 6
2.1.1 Why markets / banks? ................................................................................................................... 6
2.2 Transaction costs ........................................................................................................... 6
2.3 Asymmetric information ................................................................................................ 7
2.4 Adverse selection .......................................................................................................... 7
2.5 Moral Hazard ................................................................................................................. 8
2.6 Regulation ..................................................................................................................... 8
2.7 Recap ............................................................................................................................ 8
3. What is bank management ........................................................................................ 9
3.1 What banks do .............................................................................................................. 9
3.2 Risks .............................................................................................................................. 9
3.2.1 Interest rate risk ............................................................................................................................. 9
3.2.2 Credit risk ..................................................................................................................................... 10
3.2.3 Market risk ................................................................................................................................... 11
3.2.4 Liquidity Risk ................................................................................................................................ 12
3.2.5 Operational Risk ........................................................................................................................... 13
3.3 Risk / return trade-off...................................................................................................13
3.4 Recap ...........................................................................................................................15
4. Interest rate risk ...................................................................................................... 15
4.1 Where does it come from? ...........................................................................................15
4.2 Measuring the interest rate risk ....................................................................................17
4.2.1 Impact on the interest income .......................................................................................................... 17
4.2.2 Impact on equity .......................................................................................................................... 17
4.2.3 Duration ............................................................................................................................................ 17
4.2 Managing interest rates ................................................................................................19
4.3.1 Interest rate managing tools ............................................................................................................. 20
4.2.2 Swaps ........................................................................................................................................... 20
4.3.3 Bancassurance ................................................................................................................................... 20
4.3 Basel Standards ............................................................................................................20
4.4 Recap ...........................................................................................................................21
5. Regulation ............................................................................................................... 21
5.1 Role of regulation .........................................................................................................21
5.1.1 Before 1988 .................................................................................................................................. 21
5.1.2 Basel I ........................................................................................................................................... 22
5.1.3 Basel II .......................................................................................................................................... 23


2

, 5.1.4 Basel III ......................................................................................................................................... 26
5.2 Supervisors ...................................................................................................................27
5.2.1 Supervision ................................................................................................................................... 27
5.3 Recap ...........................................................................................................................28
6. Credit risk................................................................................................................. 29
6.1 Where does credit risk come from? ..............................................................................29
6.2 Regulation for credit risk ..............................................................................................29
6.2.1 Pillar 1: Credit risk capital requirements ...................................................................................... 29
6.2.2 Standardized approach ................................................................................................................ 30
6.2.3 IRB approach ............................................................................................................................... 30
6.2.4 Standardized vs IRB ...................................................................................................................... 31
6.3 Measuring credit risk ....................................................................................................32
6.3.1 Qualitative models ....................................................................................................................... 33
6.3.2 Quantitative / credit scoring models ........................................................................................... 33
6.3.3 Altman Z-score ............................................................................................................................. 33
6.3.4 Regression analysis ...................................................................................................................... 34
6.3.5 Linear probability model .............................................................................................................. 34
6.3.6 Logit / probit model ..................................................................................................................... 34
In a logit model, the linear relationship is adjusted through an exponential transformation ................... 34
6.3.7 Capital market data ...................................................................................................................... 35
6.4 How can credit risk be managed? .................................................................................37
6.4.1 Mitigation..................................................................................................................................... 37
6.5 Recap ...........................................................................................................................37
7. Market, operational and liquidity risk ...................................................................... 38
7.1 Market risk ...................................................................................................................38
7.1.1 5 main categories of market risk .................................................................................................. 39
7.1.2 Capital requirements ................................................................................................................... 39
7.1.3 Measuring risk .............................................................................................................................. 40
7.1.4 Standardized vs internal............................................................................................................... 40
7.2 Operational risk ............................................................................................................40
7.2.1 Capital requirements ................................................................................................................... 41
7.3 Liquidity risk .................................................................................................................42
7.3.1 What happens when depositors run on the bank? ...................................................................... 42
7.3.2 Liquidity risk in the GFC................................................................................................................ 43
7.3.3 Regulatory requirements ............................................................................................................. 43
7.3.4 Liquidity position of Belgian banks .............................................................................................. 44
7.4 Recap ...........................................................................................................................45




3

, 1. What are banks?
à Financial service providers

1.1 Balance sheet
Banks (and other financial institutions) have a different asset and liability structure compared
to other firms

Funded by financial liabilities (passiva): Assets are also mainly financial (Activa):
- Deposits - Cash
- Bonds - Loans
- Subordinated debt - Securities
- (Equity capital) - Fixed assets (branch offices)

1.2 Income statement
Income is derived from:
- Lending
- Investing in other financial assets yielding a return
- Providing services

Expenses
- Funding costs (deposits and non-deposit liabilities)
- Personnel costs
- Costs of running branch network

1.3 Types of banks
Depending on which business/funding is dominant, FIs can be divided into different business
models. Saunders and Cornett define a few:

- Depository institutions
o High proportion of funding from (retail) deposits, and main source of income
real estate loans
o Commercial banks, savings banks, credit unions
- Finance company
o Do not accept deposits, but rely on short- and long-term debt as source of
funds
o Often give riskier (personal) loans
- Securities firms
o Investment banks (originate, underwrite, distribute new securities)
o Brokerage firms (purchase, sale of existing securities)
- Retail bank
o Consumer deposits, consumer loans, mortgages, small business loans
- Wholesale bank (Corporate bank)
o Deposits/loans to large companies, governments, pension funds, etc.




4

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller StudentInGent1. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $8.25. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

84669 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$8.25  3x  sold
  • (1)
  Add to cart