Professional Documents
Culture Documents
Period: 3
January/February 2020
Course Purpose
The objective is to discuss bank management in a fast changing world. The banking
industry is facing several challenges: Digital disruption and competition from ‘Fintechs’,
Basel regulations that follow the global financial crisis, ultra-low interest rates, and
globalization vs. balkanization. On the financial side, the management of banks require
specific techniques, Asset & Liability Management (ALM), not discussed in standard
corporate finance courses.
The course is addressed primarily to participants with a strong interest in value creation, risk
management, and strategic planning in a fast changing banking world. After attending the
course, several participants have joined banks, consulting companies, investment banks
that sell advices and products to banks and insurance companies, private equity firms or
investment funds that invest in financial institutions, and Fintechs.
Learning Goals
A participant completing this course will be able to:
Value a bank
Understand Asset & Liability Management (ALM), the set of modern financial
techniques needed to create long-term value and control risks in a bank.
Assess the competitive landscape with digital disruption and FinTechs
Create value in international banking
Price loans and evaluate loan-loss provisions
Control liquidity and market risks on the banking and trading books
Control non-financial risks such as conduct and operational
Understand the Basel regulations and their impact
Textbook
Course Organisation
MBA Programme
Period: 3
January/February 2020
The course is a blend of lectures, exercises, case discussions, and use of the banking
simulation ALCO Challenge.
Course Website
After an introduction to the course, we discuss the main sources of disruption in banking,
including FinTechs. Financial ratios to analyse bank profitability are introduced and applied
to JP Morgan.
Valuation techniques specific to banks are introduced in the session. The methodology
highlights the various sources of value creation. The bank valuation model provides solid
foundations to discuss bank management.
Case: “Banco Colombia S.A.”. On the first page of the case, you are invited to focus on
specific questions.
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MBA Programme
Period: 3
January/February 2020
It is shown how a bank can be divided into profit/value centers. Foundation and advanced
'fund transfer pricing' method are proposed to analyse separately the assets and liabilities
decisions.
The presentation of the ALCO Challenge bank simulation is followed by ALCO decision 1.
A significant segment of the FinTech ecosystem includes peer-to peer lending with the dis-
intermediation of banks.
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MBA Programme
Period: 3
January/February 2020
Session 9: The Evaluation of Interest Rate Risk on the Banking Book. The Case of a
Online Neobank.
It is shown how interest rate risk depends on the joint mix of assets and liabilities. Two
approaches to measure interest rate risk are presented : Earnings-at-Risk (EAR) and
Economic Value of Equity at Risk (EVE). This session gives the opportunity to present and
discuss pure digital online banks.
The aim of this session is to discuss value-based loan pricing and expected loan-loss
provisioning on performing loans.
Recent developments in capital regulation (Basel II, Final Basel III-Basel IV) and loan
portfolio diversification are discussed.
The purpose of this session is to discuss the management of non-financial risks, conduct
and operational. Issues include an identification of the sources of risk, their evaluation and
ways to mitigate non-financial risks.
Read : Royal Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry, February 2019, pp 394-412
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MBA Programme
Period: 3
January/February 2020
PART IV: DIGITAL DISRUPTION and STRATEGY FOR VALUE CREATION AND
GROWTH
Attention is called to the multiple sources of disruption related to digital banking. In addition
to several sources discussed in previous sessions -paiement, peer-to-peer lending, and
neo online banks-, attention is focused on the distributed ledger technology (DLT) and the
application of artificial intelligence (AI).
Read: European Banking Authority (July 2018), “Prudential Risks and Opportunities
Arising for Institutions from FinTech.
Session 14: New Financial Market Architecture. Strategies for Growth and Value
Creation in international Banking. Course Summary.
The purpose of this session is twofold: To introduce very recent developments in financial
market regulation with special resolution regime and bail-in debt and discuss the strategic
challenges faced by international banks.
Case: Mc Kinsey (2019): “The Last Pit Stop? Time for Bold Late-Cycle Moves”
Dermine (2017), Europe’s Single Resolution Mechanism is a Recipe for Instability.
Evaluation
The weight attached to each component of the course in determining the final grade is:
All participants are expected to prepare the assigned readings, exercises, and cases for
in-class discussion.
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MBA Programme
Period: 3
January/February 2020
In order to share and acquire knowledge and master skills together, please be prepared
for class and arrive on time. In accordance with school policy if you arrive after class has
started, please do not enter the classroom.
Please note that if you are absent for more than three sessions of a full credit course (or
more than one session of a half credit course), you will automatically receive a failing
grade. You cannot graduate with a failing record.
The general policies outlined in the MBA Code of Conduct (Academic norms) apply.
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