RISK MANAGEMENT AND VALUE CREATION IN BANKS
Learning outcomes of the course unit
Students will develop:
1) basic knowledge on and understanding of the Italian prudential regulation and the general trends at European level (knowledge and understanding);
2) advanced knowledge on the main models for measuring and managing risks in the banking industry (knowledge and understanding);
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, market risk) (applying knowledge and understanding);
4) the ability to link risk measures with financial information (learning skills).
Students participating in the project work will also develop:
5) 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 (making judgements);
6) the ability to work in team and to organize and manage a field project (learning skills);
7) the ability to communicate the achievements, problems encountered and lessons learned, including an independent judgment (communication skills);
8) the ability to present the results of team projects, even with multimedia tools and applications (communication skills).
Basic knowledge of 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 capital adequacy and risk
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. Capital requirements under Pillar 1. The standardized approach and the IRB - internal rating based approaches.
5. Rating agencies.
6. The bank’s balance sheet analysis.
7. Internal rating systems: rating assignment.
8. The internal rating: PD quantification (probability of default).
9. The internal rating: LGD (loss given default - loss given default) and its estimation models.
10. The internal rating: the concept of EAD (exposure at default).
11. The internal rating: rating validation.
12. VAR and unexpected losses (Creditmetrics).
13. ITR, Credit risk-adjusted performance measures and risk-based pricing.
14. Concentration risk.
15. Market risk.
16. Operational risk & Reputational risk.
17. Liquidity risk.
18. The interest rate risk on the banking book.
19. Market risk.
1. A. Sironi, The evolution of banking regulation since the financial crisis: a critical assessment, Working Paper, November 2018, available on the Course website on https://elly.sea.unipr.it
2. P. Schwizer, Risk Management and Value Creation in Banks, Università di Parma C.d.L. in Finanza e risk management, Dipartimento di Scienze economiche e aziendali, Create Mc Graw Hill Education, 2018 (excerpt from A. Saunders, M.M. Cornett, Financial Institution Management. A Risk Management Approach. McGraw Hill, 2018, Ninth Edition).
3. P. Schwizer, Video-lessons available on the Course website on https://elly.sea.unipr.it.
4. Slides and additional Readings, available on the course website on https://elly.sea.unipr.it.
Students will be able to download slides and readings from elly after having registered to the Course.
Instructions on the project work and the final report for non-attending students will also be made available on the Course website.
Video-lessons, slides and additional materials are an integral part of the Course Materials for both attending and non-attending students. Students are requested to control on a regular basis the Course website on elly for additional materials and indications provided by the teacher.
Other suggested textbook (not mandatory):
A. Resti, A. Sironi, “Risk management and Shareholders’ Value in Banking”, Wiley Finance, 2007.
Credits 9; 62 teaching hours.
Teaching hours include online lectures (equivalent to 20 credit hours), videos (equivalent to 34 credit hours) and other online activities (equivalent to 9 credit hours).
Videos are focused on the application of individual risk measures and related management models. They also explain how to solve exercises and problems. Slides of each video are available in pdf format on Elly.
Other online activities include:
- the analysis and discussion of a case study on fraud risk;
- the presentation and discussion of team projects carried out by students on capital adequacy (case studies). This activity is concentrated in the second part of the course and it implies the analysis and evaluation, in small teams, of the risk management system and capital adequacy of a sample of Italian and foreign banks. The output of the project work will be short videos (10’) produced by the individual teams and discussed with the teacher in dedicated online sessions.
Non-attending students must perform a similar analysis on an individual basis by submitting a written report that will discussed during the final exam.
Online lessons are held live with Microsoft Teams. Students can find guides and instruction on Teams at the following link: http://selma.unipr.it/.
Videos are made available on https://elly.sea.unipr.it/2020 (“Elly”).
The detailed timeline of online lessons, videos and other activities for the individual topics covered by the Course is available on Elly.
Assessment methods and criteria
The exam takes place in different ways for attending and non-attending students.
Attendance is tracked through the websites Elly and Teams, on the basis of completion of the available activities, and on the basis of participation to online lessons.
A minimum 80% completion of all activities on Elly and participation to online lessons, respectively, is required for attending students.
Attending students are graded as follows:
1. An essay on a given topic (students will be asked to select one out of three proposed arguments) – 30% of the final grade.
2. A project work carried out in teamwork – 20% of the final grade.
3. An oral exam (on Teams) – 50% of the final grade.
The final mark will be equal to the weighted average grade of activities under 1., 2. and 3.
Additional points can be added to the final grade on the basis of:
4. A power point presentation on a case study on fraud risk (0-5 points)
5. Class participation (more than 80% course completion and active participation during online lessons; 0-5 points).
The Essay (under 1.) is assessed on the basis of the following criteria: Clarity and consistency of the overall structure; Thesis statement. It must be clear and coherent, and it must answer the question set in the Title. Content and references: relevance and completeness. Citations must be provided for all evidence presented. Arguments and supporting evidence. Consistency and originality of conclusion and implications. The Essay will have to be submitted to the teacher in pdf format via email by the date set out the instructions available on Elly.
The activity under 2. is assessed with regard to the ability to learn, to apply knowledge, to make informed judgements, to communicate knowledge and understanding in an effective way.
As for the final exam (3), the knowledge, understanding and learning skills are assessed with three questions about some of the main risk measurement models examined in the course. The ability to apply knowledge is established on the basis of one or more exercises or case studies.
All grades are on the course website on Elly. Students have the opportunity to comment their results and have further feedback during online meetings with the teacher.
As for non-attending students, the assessment of the acquired knowledge and the ability to apply it is 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 on the basis of five questions on the full Course program.
The report must be produced in word or pdf format (length of ca. 10-12 pages) and will have to describe and
analyze: the bank and its business model; the bank’s profitability; the bank’s risk management models, capital ratios and capital adequacy. The students can consult documents and materials available on the bank’s website (annual reports, third pillar, etc.). The student will have to send the report per email to the teacher some days before the oral exam, when it will be discussed.
The final mark will be 30 cum laude when all the parts of the exam (written text or oral exposition; teamwork or other forms of cooperative work) will be rated as excellent with regard to completeness, clarity, brightness, vividness and organization of the answers, capacity of multidisciplinary connections.