RISK MANAGEMENT AND CREATION OF VALUE IN BANKS
Learning outcomes of the course unit
Students will develop:
1) basic knowledge on the Italian prudential regulation and the general trends at European level;
2) advanced knowledge on the main models for measuring and managing risks in the banking industry;
3) the ability to apply measurement models with respect to the main risks (credit risk, operational risk, interest rate risk on the banking book, liquidity risk, concentration risk).
Students participating in the project work will also develop:
4) the ability to research, analysis and development of public data and information gathered also through interviews, with reference to strategies, risks management and capital adequacy;
5) the ability to work in team and to organize and manage a field project;
6) the ability to communicate the achievements, problems encountered and lessons learned, including an independent judgment;
7) the ability to present the results of team projects, even with multimedia tools and applications.
Basic knowledge on Financial markets and institutions and Securities markets and instruments
Course contents summary
The course deals with risk measurement and management in financial institutions. Regulatory and supervisory requirements will be considered, along with a bank management perspective on risk policy and risk management tools.
1. Prudential regulation: from Basel 2 to Basel 3.
2. Capital definition and management.
3. Credit risk: expected and unexpected loss.
4. Credit risk measurement according to prudential regulation. The determination of the capital requirements under Pillar 1. The standardized approach and the IRB - internal rating based approaches.
5. Internal rating systems: rating assignment.
6. The bank’s balance sheet analysis.
7.The internal rating: PD quantification (probability of default).
8. The internal rating: LGD (loss given default - loss given default) and its estimation models.
9.The internal rating: the concept of EAD (exposure at default).
10. VAR and unexpected losses.
11. Credit risk-adjusted performance measures 12. Risk-based pricing.
13. The concentration risk.
14. The interest rate risk on the banking book.
15. The liquidity risk.
16. The structure of the ICAAP (Internal Capital Adequacy Assessment Process) and ILAAP (Internal Liquidity Adequacy Assessment Process).
17. Operational risk: definition and regulatory profiles, measurement.
18. Reputational risk.
19. Capital allocation: guiding principles.
20. Corporate governance and internal control systems: organizational requirements for capital optimization.
A. Resti – A. Sironi, Rischio e Valore nelle Banche, Seconda edizione, EGEA, Milano, 2008.
(Capitoli: 1, 2, 3, 4, 5, 11, 12, 13, 14, 15, 16, 18, 19, 21, 22, 23, 24).
G. De Laurentis, Il credito alle imprese dopo la crisi. Politiche e strumenti di dialogo banca-impresa: rating, analisi e previsione finanziaria, Bancaria Editrice, Roma 2011.
Paola Schwizer, Risk Management – Additional Materials 2016/2017 available on the course website on elly.economia.unipr.it.
Class lessons and seminars to develop the students’:
- Knowledge and skills
- Ability to apply knowledge
Class discussions, class exercises and project work to develop the students’:
- Capacity for independent judgement
- Learning skills
- Communication skills
- Teamwork skills
Assessment methods and criteria
The exam will take place in different ways for students participating in the project work and for those who do not participate.
For students participating in the project work, the teacher assigns a grade to the outcome of the project carried out by each group, based on an assessment of the ability to learn, to apply knowledge, to make informed judgements, to communicate their knowledge and understanding in an effective way. This grade accounts for 25% of the final grade and is assigned to the group, and not to the individual, in order to stimulate team spirit. The teacher takes into account the result of a peer evaluation carried out by the class, based on an evaluation grid proposed by the teacher that considers the satisfaction of the classroom with respect to the following items (scale 1 to 4): mastery of the subject, clarity of exposition, the ability to arouse interest, use of language, homogeneity of the individual contributions, overall satisfaction. The result of the peer evaluation is counted to the extent of 25% of the project work’s grade. The remaining 75% of the final grade is assigned on the basis of an exam carried out in oral form. In this context, the knowledge, understanding and learning skills are assessed with two questions about some of the main risk measurement models examined in the course. The answers account for half of the final grade. The ability to apply knowledge is established on the base of one or more exercises or case studies. The final mark will be equal to the weighted average grade of the project work (25%) and the grade of the individual test (75%).
For students who do not participate in project works, the verification of the acquired knowledge and the ability to apply will be based on the evaluation of a final report produced on a bank (which will account for 20% on the final grade) and by means of an oral test similar to the one described above.
Reputational Risk (4 hours) - by Gabriele Maucci, Head of Operational & Reputational Risks Strategies, Group Operational & Reputational Risks Management, Risk Management Department (CRO), Unicredit Group.