NATIONAL UNIVERSITY OF SINGAPORE
NUS Business School
Department of Finance
Course Outlines
BMA5534 Banking and Financial Intermediation
Semester 2, AY2011-2012
TIME: Thursday, 6.00pm – 9.00pm
Venue: BIZ1 #3-2
Instructor:
Sumit Agarwal. ushakri@yahoo.com
Course Organization
COURSE OUTLINE
Course Objectives: This course will introduce students to the key areas of decision making in
commercial banking. In addition, this course will consider the impact of the legal, regulatory
and macroeconomic environments on the behavior and performance of banks both in the US and
abroad.
Textbook:
Financial Institutions Management, A Risk Management Approach. 6th Edition,
McGraw-Hill Irwin, 2008 (Cornett and Saunders)
Other
The textbook will be augmented by other readings as noted under each topic. I
will also be Readings: handing out journal articles related to each topic.
Overhead
Most lectures will be accompanied by overhead presentation(s) that can be
Presentations: downloaded from Oncourse.
Grading:
Midterm
Exam Date:
A midterm exam (one-half) and a final exam (one-half).
READINGS AND LECTURE OUTLINE
Part I - The Banking Firm and Its Environment: An Overview
1. The Nature of Banking, Bank Performance and Bank Financial Statements
Topics:
the subprime mortgage crisis (a preview)
introduction to financial intermediation
introduction to the banking business
bank financial statements
survey of risks in banking
consolidation of the financial services industry
scale efficiency, scope efficiency and X-efficiency
securitization
MBSs, CDOs, and CDSs
pro-cyclicality in lending
credit crunches
Fed reaction
lessons/issues for banking and banking regulation
Readings:
- CS: Chs 1, 2, 7, 22
- Handout: “Analyzing Bank Financial Statements”
“From Complacency to Crisis: Financial Risk Taking in the Early 21st
Century,” Dannielle DiMartino, John V. Duca and Harvey Rosenblum,
Economic Letter,Federal Reserve Bank of Dallas, December 2007.
“Comparing the Prime and Subprime Mortgage Markets” Sumit Agarwal
and Calvin Ho, Chicago Fed Letters, #241 August 2007
2. Interest Rate Risk, Market Risk, and Credit Risk
Topics:
the repricing model
the maturity model
the duration model
market risk measurement
value at risk, DEaR
BIS framework for market risk
loan types
measurement of risk
default risk models
loan portfolio and concentration risk
the lending process
originating a business loan
Readings:
- CS: Chs 8, 9, 10, 11, and 12
3. Liquidity Risk & Liability Management
Topics:
bank funding environment
funds cost acquisition
definition of liquidity
need for liquidity
sources of liquidity
managing liquidity
Readings:
- CS: Chs 17, 18
4. Financial System Architecture
Topics:
flow of funds
asymmetric information and banking
financial system design
traded vs. nontraded financial instruments
regulation
securitization
consolidation of the financial services industry
economies of scale, economies of scope, managerial efficiency
repeal of the McFadden Act
repeal of the Glass-Steagall Act
market structure and competition
Readings:
Gande, A., M. Puri, and A. Saunders [1999] “Bank Entry, Competition,
and the Market for Corporate Securities Underwriting,” Journal of
Financial Economics 54, p. 165-195.
5. Bank Regulation, Capital Adequacy, Deposit Insurance and Moral Hazard
Topics:
bank runs and bank panics
deposit insurance, moral hazard and the put option analogy
risk-based capital, Basel I and Basel II
risk-based deposit insurance premiums
banking crises – the case of Japan
the subprime mortgage crisis II
Readings:
- CS: Chs 19, 20