Management of Financial Institutions
Topics of this Course
- Bank Performance Analysis
o Accounting Perspective: Financial statement analysis of banks
o Market Perspective: Cost of equity for banks
- Post-Financial Crisis Bank Regulatory Framework
o Evolution of bank regulations after the Great Financial Crisis
- European Banking Performance and Trends
- Impact of Monetary Policy on Bank Performance
o Effects of ECB and FED policies on banks
- Banking Business Models
Great Financial Crisis: 2007 – 2008
Sovereign Debt Crisis: 2009 – 2010
Covid: March 2020
Energy crisis: 2022
BRRD Bank Recovery and Resolution Directive
EBA European Banking Authority EU27
ECB European Central Bank 20 Euro-area
EDIS European Deposit Insurance System
ESRB European Systemic Risk Board EU27
FSB Financial Stability Board Worldwide
NBB National Bank of Belgium
SRB Single Resolution Board MREL in European Banks
SSM Single Supervisory Mechanism Supervisory arm of the ECB
ABS Asset backed securities
AT1 Additional tier 1
COCO Contingent convertible bonds
LTRO Longer-term refinancing operations
REPO Repurchase rate
SPV Special purpose vehicle
CoE Cost of equity of euro-area banks 10-15%
Rm – Rf Market premium 4-6 %
Rf Risk free rate DE 2.3%
Rf Risk free rate BE 3%
B Beta of the average bank 1.5%
CET1/RWA >7%, 15% on average
CET1/TA Leverage ratio >3%
IR US 10y interest rate US 4.4%
Les 1: Economic Environment
1. Macro-economic conditions
a. Growth
b. Inflation
2. Central banks monetary policy
a. Fed
b. ECB
3. Implications for long-term interest rates
4. Implications for banks
Les 2: Bank performance and risk: Accounting approach
1. Bank balance sheet
a. Loans
b. Securities
c. Deposits
d. Bonds
e. Capital
2. Bank income statement
3. Bank returns RoE
a. Net interest margin
b. Non-interest income
c. Operational efficiency
d. Asset quality
4. Bank risks
a. Credit risk
b. Interest rate risk
c. Liquidity risk
d. Capital risk
Les 3: Bank performance and risk: Market approach
1. Determinants of bank stock returns CAPM
2. Risk decomposition
a. Systematic risk Beta
b. Idiosyncratic risk
3. Bank cost of equity CoE
4. CoE versus RoE
Les 4: Bank regulatory framework - 1
1. Regulation
a. Basel 3
b. Countercyclical capital buffer CCyB
c. Globally systemically important financial institution G-SIB
d. Liquidity coverage ratio and net stable funding ratio LCR and NSFR
e. Total loss-absorbing capacity T-LAC
2. Supervision
a. European banking union
b. Single supervisory mechanism SSM
c. Single resolution mechanism SRM
d. European deposit insurance system EDIS
3. Recovery and resolution
a. Bail-in
4. Case: Swiss Credit
Les 5: Bank regulatory framework - 2
1. Macroprudential policies
2. Stress tests
3. Corporate governance of banks
Les 6: European banks performance and risk profile
1. Current stance of European banks
2. Benchmarking
3. RoE gap beween US and EU
4. Guest speakers: NBB
Les 7: Effect of ECB monetary policy on banks
1. How does the ECN conduct its monetary policy
2. What are the effects of unconventional monetary policy on bank profitability and risk?
3. How does the restrictive conventional monetary policy stance affect banks?
4. Bank lending conditions, bank interest rate betas