Understanding Risks in Banks

No pain, no gain: a fine line to walk between profit and loss

Course objectives

  • Understand internal and external risk factors for a bank
  • Analyze how banks manage risk
  • Understand the financial crisis and the response

Course content

Introduction: back to the roots of modern banking, from Venice to the Rothschilds, to universal banks

Exogenous risk: where do crises come from

  • Anatomy of a financial crisis, 1929 and 2008
  • Main financial crises post -1945
  • Regulatory framework and political situations lining up with crisis time
  • Monetary policy from Central Banks and impact on banking activity
  • Governance of banks and financial institutions: risk at all the doors

Case Study: risk mapping in 2008 and today

Banks's job is to produce and manage risk, and be compensated for it

  • Maturity transformation and intermediation
  • Banking book vs trading book
  • Asset and Liability Management
  • Guarantees

Case Study: definition of risk premium and asset class cycles

Bank is also subject to risk

Types of risk * Macro : rates, currency, market, liquidity, volatility * Micro : credit and counterparty risk, operational risk, leverage

Case Study: risk mapping of a European universal bank

How a bank measures and manages risk

  • Different levels of Risk Management
  • Calculating credit risk
  • Operational risk from Front to Back Office: Jérôme Kerviel
  • Measuring risk in financial markets; VaR (Value at Risk) and its limitations
  • From the Cook ratio to the Basel 3 architecture: an evolution warranted by lessons of crises

Bank failing and resolution

  • Impact on the environment
  • Is it possible to anticipate and measure all risks….. what is a Black Swan
  • Operational risk
  • Failing governance
  • The temptation of circumventing the Spirit of regulation
  • Banking Union : what's new

Case Study: Dexia

The New World: new classes of risks for banks

  • Gigantic fines for banks are to act as deterrents
  • The advent of new competing business models: shadow banking, peer-to-peer lending, prop funds

Tigrane Kibarian

Tigrane Kibarian

Tigrane Kibarian graduated from ESSEC and began his career in audit at Arthur Andersen before joining General Electric, where he worked in corporate finance. He then joined Goldman Sachs in London where he was first team leader in charge of the Business Development of Equities Division. He then worked in restructuring large institutional portfolios across all asset classes. Now an independent trader, active in major index, currency and bonds markets, his broad vision of the economy and his cross – trading room and products experience give him a very practical understanding of financial markets.

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