NYU Stern School of Business

Undergraduate College

FINC-UB.0022.002 (C15.0022): RISK MANAGEMENT IN FINANCIAL INSTITUTIONS

Fall 2012

Instructor Details

Cebenoyan, A. Sinan

acebenoy@stern.nyu.edu

by appointment

K-MEC 9-150

 

Course Meetings

TR, 11:00am to 12:15pm

Tisch T-LC21


Final Exam:

Schedule exceptions
    Class will not meet on:
    Class will meet on:

 

Course Description and Learning Goals

This course will focus on the financial management and regulation of financial institutions, with a primary focus on commercial banks. Students should be able to comprehend the various forms of risks faced by intermediaries and the trade-offs required in order to balance risks and returns. The focus will be on the modern techniques of asset, liability and risk management, with an emphasis on the regulatory issues of capital adequacy, and risk-shifting as they affect the safety and soundness of the financial system. By the end of this term you are expected to be fluent in all major sources and kinds of risks faced by larger financial institutions.

 

Course Pre-Requisites

Prerequisite: C15.0001

 

Course Outline

Course Outline:

Not All sections of all chapters will be required.   Sections to be omitted will be announced in class.   Your dedicated attendance will save you time and headaches.  The chapters that are in bold (and shaded) will be the ones that have the highest chance of coverage.   Other chapters may be covered as time permits.   Also, regularly check the Blackboard site for changes and announcements.    IMPORTANT NOTICE:  This is NOT a Web-based course.   The course is centered around what I teach in class, and NOT on what is posted on the web.  All information posted on Blackboard and elsewhere on the web is meant to supplement and NOT substitute the teaching that goes on in the classroom.   If you do NOT attend class and expect to succeed in the course just by following what is on the web, you will be disappointed.

 

Part I:  Overview                                                                                   Chapters

1.Introduction
2.Why are Financial Intermediaries Special?                                                     1
3.Financial Services Industry                                                                               2-6

Part II: Risks of Financial Institutions

1. Overview of Risks                                                                                                       7
2. Interest rate risk                                                    8,9 (parts of the appendix)
3. Market Risk                                                                                                              10
4. Credit Risk                                                                                                     11,12

5.Sovereign Risk                                                                                                 15

6. Liquidity Risk                                                                                                      17

7.  Futures and forwards                                                                                          22

Part III: Managing Risks – Regulations- Innovations

1. Capital Adequacy                                                                                             20
2.  Securitization - Swaps                                                                                       27     

 

Required Course Materials

Text: Required:   Anthony Saunders, Marcia Cornett, Financial Institutions Management: A Risk Management Approach, 7th edition, McGrawHill-Irwin, 2011.

You are expected to own and be able to use a financial calculator. You are also expected to subscribe to the Wall Street Journal, or other financial media, and come to class fully aware of what is going on in the financial markets.

 

Assessment Components

Grading:

You will have a THREE exams; The first one on Thursday October 4, 2012, the second on Thursday November 8, 2012, and the FINAL IS ON Tuesday, DECEMBER 18th, 8:00 am for section 1, 10:00 am for section 2.  You will be asked to research a bank of your choice over time and against its peers on issues discussed in this course.  This will be submitted as a term paper (details to follow below) by Monday December 10, 2012.  I also reserve the right to give a couple of unannounced quizzes. Your final exam will be cumulative. Make-ups are not possible for these exams/papers/quizzes.   Class participation, attendance, and occasional assignments may be worth 0-5 % of your overall grade.   Attendance will be taken frequently, if not always.  All exams are closed-book, and closed-notes.   No electronic devices other than approved calculators are allowed in exams.  Attempts at considering a less-than-honest effort will not be tolerated.   The first two exams will be worth about 25 points each, the paper/project will be about 15 points, and the final will take up the difference to add up to 100.  

There are no additional works that you may ask to do if you do not like your grade.   Once your grade has been submitted by me to the university, there is nothing left to do for you or me in this course. There are no exceptions to these rules.  

TERM PAPER/PROJECT INSTRUCTIONS.

Absolutely before the first exam date (October 4th), you are to choose a medium to large sized AMERICAN Financial Institution, preferably a Commercial bank, and study its performance over time and with respect to its peers (Time-series and cross-section) with special emphasis given to issues analyzed in this course.

You are expected to gather AND analyze financial data relevant for such analysis from both the web (FDIC is a good source) and the NYU library resources.  You must notify me by October 4, 2012 in writing as to which bank you wish to work on, and get my approval.   This date would put you in a late start.  SO, start NOW!

 

EXPECTATIONS:  The list below contains activities that not all banks may engage in.   If your bank does not have significant activity or does not provide sufficient data to analyze, just state the fact and move on.

 

 

You are welcomed to add other relevant sources of information to your analysis.

Your report should NOT exceed 10-12 single-spaced (Times New Roman font 12pt size) pages, and is due (absolutely!) by midnight, December 10, 2012.  NO E-MAIL, NO FAX, NO EXCEPTIONS!  You will submit your report through TURNITIN on BlackBoard. If the time stamp is later than the deadline you will automatically move one letter grade down for each day that the paper lags into.

 

Grading

At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter.  In general, students in undergraduate core courses can expect a grading distribution where: 

Note that while the School uses these ranges  as a guide, the actual distribution for this course and your own grade will depend upon how well  you actually perform in this course.

 

Re-Grading

The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.

If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.

 

Professional Responsibilities For This Course

Attendance

 

Participation

In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:

 

Assignments

 

Classroom Norms

 

Stern Policies

General Behavior
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior.  Students who fail to do so may be asked to leave the classroom. 

 

Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission. 

 

Course Evaluations
Course evaluations are important to us and to students who come after you.  Please complete them thoughtfully.

 

Academic Integrity

Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:

The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:

Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505

To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin.  Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications.  Additionally, your document will become part of the Turnitin database.

 

Recording of Classes

Your class may be recorded for educational purposes

 

Students with Disabilities

If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend.  If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.

 

CHANGES

I reserve the right to change the above if needed.  I will do so only if I have to.

 

Group Projects

Guidelines for Group Projects

Business activities involve group effort. Consequently, learning how to work effectively in a group is a critical part of your business education.

Every member is expected to carry an equal share of the group’s workload. As such, it is in your interest to be involved in all aspects of the project. Even if you divide the work rather than work on each piece together, you are still responsible for each part. The group project will be graded as a whole:   its different components will not be graded separately. Your exams may contain questions that are based on aspects of your group projects.

It is recommended that each group establish ground rules early in the process to facilitate your joint work including a problem-solving process for handling conflicts. In the infrequent case where you believe that a group member is not carrying out his or her fair share of work, you are urged not to permit problems to develop to a point where they become serious. If you cannot resolve conflicts internally after your best efforts, they should be brought to my attention and I will work with you to find a resolution.

You will be asked to complete a peer evaluation form to evaluate the contribution of each of your group members (including your own contribution) at the conclusion of each project. If there is consensus that a group member did not contribute a fair share of work to the project, I will consider this feedback during grading.

 

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