Bank Management

URL study guide

https://studiegids.vu.nl/en/courses/2024-2025/E_FIN_BANKM

Course Objective

This course aims to deepen your knowledge on the business model of banks and the role they have in the wider economy. After completion of the course, you should: - Have a thorough understanding of how banks make their money and the risks involved (Bridging Theory and Practice). - Understand the concept of Asset & Liability Management, including capital (Academic and Research Skills). - Be able to assess a credit request and be able to apply a credit risk analysis for a corporate, form an opinion and decide on the request (Bridging Theory and Practice). - Define and value the trends impacting the banking environment, including innovation and digital currencies (Bridging Theory and Practice). - Be able to explain the role of the different regulators and outline the most important new regulations that apply to banks and how these will impact their business model (Broadening Your Horizon). - Understand the basics of Financial Stability and monetary policy and the impact on banks (Academic and Research Skills). - Understand and explain the concept of money creation (Bridging Theory and Practice). - Acquire an academic and critical attitude towards the financial system in general and the role of banks in particular (Broadening Your Horizon).

Course Content

This course is a multidisciplinary course and deals with two important aspects of bank management: the bank business model and business process management within a bank. The fist topic is about financial economics, however we will also zoom into the broader function of banks in the macro economy. The second is about business process management. In more detail there are 4 building blocks: The first building block is about the position of banks in the wider economy. Both the academic frameworks re macro and financial economy will be studied. This will include ‘banking’ alternatives. What is the future business model of banks, is it still viable in the coming decade? The second building block is about bank management and consists of balance sheet risk management and credit risk. Re the latter, the loan portfolio is on average 50-75% of the portfolio and determines for a large part the business model of a bank. Focus will not only be on individual credits, also techniques to manage the loan portfolio will be studied. There will also be paid attention for new business models (fintech / bigtech) and the implications for existing banks. Balance sheet risk management consists out of capital, interest rate risk and liquidity. This is the third building block. Managing financial risk at both the asset and liability side is key for banks. The recent banking crisis shows the impact of overlooking and underestimation financial risks. Improving a banking business model can be seen as an optimisation of a banking portfolio
- having various product-market combinations
- in terms of (financial) risk and return. The fourth building block focus on the regulatory environment. There will be a tour d'horizon of the regulatory landscape, with specific attention for KYC and Sustainability.

Teaching Methods

Each of the six weeks of the course feature four hours of lectures and there will be three tutorials in which we will bridge theory and practice. The content of the lectures varies and is aligned to the course content. First we will zoom in on the banking business model itself. We will study this from a bank’s perspective (book) and from a business perspective (case). Focus will be on the strategic framework vs. the risk framework. We will analyse how to manage the balance sheet, including capital and the credit risk function will be explained. The latter will be applied when we assess two or three credit requests. In the second part the focus will be on trends in the economic environment that banks operate. We will discuss the place of banks in the economy and the impact on financial stability. We will examine the developments of the current regulation and also zoom into the reasons why this is necessary and the impact on banks. There is an individual assessment and a group assessment. The focus of these assignments is to apply the theoretical knowledge from class to a real live credit request (individual assignment) and an investment proposal for a bank in an emerging market (group assignment). In addition to gaining a deeper understanding of the topics in the course, the assignments will train you in your communication skills (both verbal and written) you will need later in your career and prepare you for similar assignments in other courses and your thesis.

Method of Assessment

To pass this course, you need a minimum final grade of 5.5. The final grade is given by: Final grade = [ Written exam Grade (max 70) + Grade Individual Case (max 15) + Grade Group assignment (max 15) ] / 10.

Literature

The Basics of Money and Banking (2021), By Wim Boonstra and Linda van Goor, VU University Press ; ISBN: 978 90 8659 811 3

Entry Requirements

The recommended knowledge is in line with the entry requirements for the master Financial Management as a whole. Particularly recommended is prior knowledge in the field of finance, financial markets and institutions.