Introduction
First Day Introduction
Course
Simulation
Introduction
Course Introduction
Syllabus
– Course Description
– Required Resources
– Grading
– Tentative Schedule
Simulation
Stanford Bank Game
– Simulated Bank Operation
– Management Team Experience
Simulation
Concentration on:
– Mechanics: Capital, Cost of Funds,
Maximizing Fee Income
– Management: People Issues, Time
Management and Delegation, “Stickwith-it-ness” and what to do when “you
really don’t know” and that’s ok!
Banking Fundamentals
SPREAD:
Investment Return – Cost of Funds
Investment Return mainly from Loans and
Securities
Cost of Funds mainly from Capital and
Borrowed Funds
Banking Goals
Profitability (Not Size!)
– Spread  4% +
– ROA  1-1.5%
– ROE  12% +
Solvency
– Capital to Assets 7-8%
(No More, No Less)
Financial Institutions
Commercial Banks
Investment Banks
Savings and Loans
Credit Unions
Insurance Company
Mutual Fund
Commercial Banks
 “Accept Deposits and Make Loans”
– But Also FDIC Insured & Fed Regulated
 Global/International/Money Center
– Chase
 Full Service
– BankAmerica
 Retail/Consumer
– Citizens
 Limited Purpose / Mono-line
– Credit Cards, Ag Loans
Bank Services
 Payments
 Intermediation
 Other Services
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Guarantees
Insurance
Securities
Trust
Other Fin’l Svcs we will discuss
Bank’s Main Activity
Maximize Shareholder Wealth
– By managing Credit, Interest Rate,
Liquidity, Operational, Capital and Fraud
Risk
– Subject to constraints from Market
Competition, Social structures and
Regulatory requirements
Assignment for Next Time
Go to Class Webpage (Syllabus)
Go to Apr 5th entry
Click on, print and bring to class
Y1Q4Output.pdf