Financial Intermediation - Introduction

2013-2014

Course Description
2

Why is this subject important?

Why

are banks important?

do banks do?
How do banks manage risks?
How do you analyze a banks performance?
What

FINANCIAL INTERMEDIATION

Pre-requisite:
24

Principles of banking and finance or 94

Principles of banking

INTRODUCTION
2013 Lillibeth Ortiz

Course Description
3

GIVE & GET

4

Aims and objectives

to

develop understanding of the theories of

financial intermediation
to develop understanding of concepts and
practices relating to the risk management
process and techniques applied within major
financial intermediaries
to develop understanding of recent
developments in financial risk management
and regulation, including credit risk models,
securitisation, derivative instruments and
capital adequacy

Learning Outcomes / Outline

5

What do I expect to GET (learn) from this

class?
What can I GIVE for this course?

Learning Outcomes / Outline

6

Discuss and evaluate key theories relating

to the role of banks as financial
intermediaries

Important theories of financial

intermediation (Chapter 1 of subject guide)
Bank runs and reasons for bank regulation
(Chapter 2)

Discuss and evaluate the risks that banks

face and explain how these risks are
managed, with particular focus on
techniques of asset and liability
management, and credit risk measurement
and management

Lillibeth Ortiz

Key risks in banking and risk management

within banks (Chapter 3)
Credit Risk (Chapter 4)
Balance sheet management, liquidity and
interest rate risk (Chapter 5)

Financial Intermediation - Introduction

2013-2014

Learning Outcomes / Outline

7

Learning Outcomes / Outline

8

Discuss the importance of capital in bank

management and the role of securitisation,
and explain the importance of capital
adequacy within banking regulation

Analysing

Importance of capital in bank management

and capital adequacy regulation (Chapter
2 & 3)
Risk transfer through the use of securitisation
(Chapter 6)

bank performance (Chapter 7)

Explain the principles and techniques

involved in the use of derivative instruments
for hedging interest rate risk, exchange rate
risk and credit risk
Hedging

interest rate risk, exchange rate risk

and credit risk using derivatives (Chapter 6 &
8)

Overview
9

Describe and analyse the various means of

analysing bank performance

References
10

Brings together issues:

Upstream:

risk measurement and

management
Downstream: process of risk management
and the implementation of hedging
programmes

Strategies

for Success how to study

Information Sheets what to study
Subject guides what and how to study
Essential and further reading knowledge
and approach to study
Past year examination papers examiners
commentaries warnings and general
advice; guidance as to how to answer
questions
Course

Risk vs Reward
2 books:
Traditional
Trading

banking book
book

Essential reading
11

UOLs Virtual Learning Environment (VLE)

Essential Reading
12

Textbooks

J. Risk Management in Banking

(Chichester: Wiley, 2010) third edition
Matthews, K. and J. Thompson The
Economics of Banking. (Chichester: Wiley,
2008) second edition
Saunders, A. and M.M. Cornett Financial
Institutions Management: A Risk
Management Approach. (New York:
McGraw Hill, 2011) 7th edition (international)

Check the textbooks website for quizzes & appendices

www.mhhe.com/saunders7e

Lillibeth Ortiz

Journal Articles
Bhattacharya, S. and A.V. Thakor
Contemporary banking theory, Journal of
Financial Intermediation 3(1) 1993, pp. 250
Diamond, D.W. Financial intermediation as
delegated monitoring: a simple example,
Federal Reserve Bank of Richmond Economic
Quarterly, 82(3) 1996, pp.5166.
Neal, R.S. Credit derivatives: new financial
instruments for controlling credit risk, Federal
Reserve Bank of Kansas City Economic Review
81(2) (1996), pp.1528.

Bessis,

Check Further Readings in the VLE

Financial Intermediation - Introduction

2013-2014

Online Resources
13

Examination
14

You can access the VLE, the Online Library

and your University of London email
account via the Student Portal at:
http://my.londoninternational.ac.uk

3 hours
Answer 4 out of 8 questions
All the topics covered in the syllabus and
subject guide could be examined
Some

topic

Class Offering
15

questions could cover more than one

Check VLE for updates and exam

commentaries

Class Offering
16

Lecture notes and essential articles

21 lecture/tutorial classes
2 revision classes
4 tests or assignments
Portal/website

Lecture

notes
slides
Tutorial solutions
Videos
Interesting articles
FAQs
Extra

Class Offering
17

To be uploaded online at SIMConnect

Polls

Students Responsibilities
18

Email for questions & feedback:

ortiz001@mymail.sim.edu.sg
Questions I can answer:
Specific questions

Clarifications made after youve read through the notes,

subject guide and textbooks

Questions I cannot answer:

Picking chapters

Which chapters should I study?

Comment on essays

Could you provide model essays?

Lillibeth Ortiz

Study
Essential

reading

Attend own class punctually

Participate in class
Exercises,
Minimize

discussions
noise level, hand phone/tablet use

Maintain academic honesty

Note:

plagiarism (see SIM GE Programme

Handbook EMFSS)