Building the Bank

Learning Outcomes

Key Components of bank’s balance sheet
Overview of Risk and Bank Capital
Know major sources of risk faced by financial firms
The concept of Risk Weighted Assets (RWA) and how RWA can be computed for risk
Calculation the RWA using Basel ll Standardised Approach
Maturity Transformation as the fundamental business model of commercial banking

Discourse

In this course Building the Bank, we will dive into understanding the key components of a bank’s balance sheet including assets, liabilities and capital. We will also explain the main alternative sources of bank funding from equity, capital, and preferred stock to convertibles to bond issues, interbank borrowing and many others. We will be going over concepts like Net Interest Margin (NIM), Non-Performing Loans (NPL), and Risk Weighted Assets (RWA) showing how to calculate RWA of a loan and how it can be computed for various types of risk. We will also go into an overview of risk and bank capital including the major sources of risk faced by financial firms as well as other types of risk which arise in the industry. We will explain the concept of maturity transformation as the fundamental business model of a commercial bank. Other topics covered will explain the concepts of macroprudential and microprudential regulation and the function of the BCBS and the general aims of the Basel rules.

Program Overview

Bank Balance Sheet

Know the key components of a bank’s balance sheet at high level: assets, liabilities and capital
Know the main alternative sources of bank funding: equity capital, preferred stock, convertibles, bond issues, interbank borrowing, cash from depositors
Understand the strengths and weaknesses of each of the sources of funding
Know the concepts of Net Interest Margin (NIM) and Non-Performing Loans (NPL)
Understand the concept of Risk Weighted Assets (RWA)
Calculate the RWA of a loan using the Basel II Standardised Approach, given the type of borrower and their credit rating
Understand the concept of the Internal Models Approach for calculation of RWA
Understand the difference between the banking book and trading book
Understand how RWA can be computed for market risk, credit risk and operational risk

Overview of Risk and Bank Capital

Know the major sources of risk faced by financial firms: market risk, credit risk, liquidity risk, operational risk
Know other types of risk which arise in the industry: reputational risk, systemic risk
Understand the concept of maturity transformation as the fundamental business model of a commercial bank
Understand how/why banks become exposed to risk as part of their business
Understand why regulations have been devised to influence the amount of risk which banks can take
Know the concepts of macroprudential and microprudential regulation
Know the function of the BCBS and the general aims of the Basel rules
Understand the 3 pillars of Basel regulation

Case Study

Review Bank’s Balance Sheet
Major sources of risk faced by financial firms: Market Risk, Credit Risk, Liquidity Risk, Operational Risk