The Business of Banking
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Banking and risk analysis is a dynamic subject which aims to provide insights and understanding of theories and practices relating to the risk management techniques currently being used in major banks throughout the world. The diversity of the subject stems from two important themes:
- it regards banks as businesses which need to be managed and organized to maximize efficiency and profits, and which need to address the inherent risks of their operations.
- it investigates issues in asset pricing and risk analysis, since banks are major actors in international financial markets in which a range of financial instruments are traded.
The syllabus brings together the upstream issues of risk measurement and management with the downstream issues of the process of risk management and the implementation of hedging programs. Whereas traditional risk management focused on a bank’s banking book (i.e. – balance sheet assets and liabilities), modern risk management is concerned with both the banking book and the trading book, which mainly consists of off-balance sheet financial instruments.
After studying this subject, you should be able to:
- discuss and evaluate key theories relating to the role of banks as financial intermediaries.
- discuss and evaluate the risks which banks face and how these risks are managed. In this respect, you should be conversant with the basic techniques of asset and liability management, together with the measurement and management of credit risk.
- discuss the importance of capital in bank management and the role of securitization. Further, you should be able to describe the importance of capital adequacy within banking regulation.
- describe and analyse the various means of analysing bank performance.
- describe the basic concepts of finance theory that underpin the analysis of risk, uncertainty and the pricing of assets.
Explain the principals involved in the use of derivative instruments for hedging interest rate and exchange rate risk.