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Introduction to Bank Management

Course code
Course type
BSc Course General Studies
Weekly Hours
FS 2019
Prof. Dr. Axel Wieandt
Please note that exchange students obtain a higher number of credits in the BSc-program at WHU than listed here. For further information please contact directly the International Relations Office.

Session 1 and 2 – Fri (11.01.2019), 13:45 to 18:45, K-001 Hörsaal / Lecture Hall

Session 1 – Introduction to banking

■ Dermine (2014) chapter 1–4
‒ Discounting, present value, and the yield curve
‒ Coupon bond rate, zero coupon bond rate, forward rates, and the shape of the yield curve
‒ Statistics, a review
‒ The economics of banking, and a bank’s balance sheet and income statement

■ Freixas/Rochet (2008) chapter 1–2
‒ Microeconomics of banking, introduction
‒ The role of financial intermediation

■ Dermine (2014) chapter 16
‒ Securitization

■ Wieandt (2017) Part I chapter 2–4
– Europe's banking landscape / Banking – from the bottom up
– Bank's specialness, and the need for regulation, supervision, and safety nets

■ Optional reading: Hellwig/Admati (2013) chapter 1–4; Schmidt/ Hackethal/Tyrell (1999)

Session 2 – Banking crises and bank regulation

■ Acharya/Richardson (2009) Part I chapter 1–2
‒ Mortgage origination and securitization in the financial crisis
‒ How banks played the leverage game

■ Wieandt/Mönninghoff (2011)
‒ The financial crisis: observations and implications / HRE Case Study

■ Dermine (2014) chapter 12–13, 22, 29

‒ Capital regulation (Basel I), Economic capital allocation, and loan pricing I (the equity spread)

‒ Capital regulation (Basel II)
‒ The Basel III global regulatory framework for more resilient banks and banking systems
‒ Prudential regulations, safety nets, and corporate structure of international banks (branches vs. subsidiaries)

■ Wieandt (2017) Part III chapter 7‒8 and Part IV chapter 9
‒ Great Financial Crisis and early lessons drawn

■ Optional reading: Reinhart/Rogoff (2009) chapter 1, 10, 13; Hellwig/Admati (2013) chapter 5–10; Acharya et al. (2011) Prologue: A Bird´s Eye View; Blundell-Wignall/Atkinson (2010)

Session 3 – Bank valuation – Fri (18.01.2019), 13:45 to 18:45, K-101 Hörsaal / Lecture Hall

■ Dermine (2014) chapter 5, 6, 8
‒ The valuation of banks, part 1
‒ The valuation of banks, part 2
‒ Valuation of fee-based activities

■ Optional reading: Weiss/Wieandt (2000); Freixas/Rochet (2008) chapter 3.2–3.3

Session 4 and 5 – Thu (07.02.2019), 13:45 to 18:45, K-001 Hörsaal / Lecture Hall

Session 4 – Value-based management I

■ Dermine (2014) chapter 7, 9–10
‒ Economic and strategic drivers of bank valuation
‒ Value-based management in banking: an introduction
‒ Fund transfer pricing: foundation and advanced approaches

Session 5 – Value-based management II

■ Dermine (2014) chapter 11, 14, 15
‒ Deposit pricing and repurchase agreements
‒ Loss given default and provisions on nonperforming loans
‒ Loan pricing II, loan-loss provisions on performing loans, and estimates of probabilities of default

Session 6 – Risk management in banking – Fr (15.02.2019), 13:45 to 18:45, K-101 Hörsaal / Lecture Hall

■ Dermine (2014) chapter 17–19, 21, 24
‒ Risk management in banking: an overview
‒ The control of interest-rate risk on the banking book, part 1: the earnings at risk
‒ The control of interest-rate risk on the banking book, part 2: the economic value at risk
‒ Liquidity risk and value creation
‒ Marginal risk contribution, diversification, and economic capital allocation

Final Exam – Wed (27.02.2019), tba

Resit Exam – Wed (15.05.2019), tba

Date Time
Friday, 11.01.2019 13:45 - 18:45
Friday, 18.01.2019 13:45 - 18:45
Thursday, 07.02.2019 13:45 - 18:45
Friday, 15.02.2019 13:45 - 18:45
Upon completion of this course, students will be able to:
  • Understand the peculiarities of valuing a bank, factors shaping the banking industry (e.g., regulation), and how this bears on value-based bank management
  • Apply key concepts of value-based bank management like deposit and loan pricing
  • Understand key concepts of risk management in banking
Basic Readings■ Dermine, Jean, 2014: Bank Valuation and Value-Based Management: Deposit and Loan Pricing, Performance Evaluation, and Risk Management. 2nd edition. New York: McGraw-Hill■ Freixas, Xavier and Jean-Charles Rochet, 2008: Microeconomics of Banking. Cambridge, MA: MIT Press■ Acharya, Viral V. and Matthew Richardson, 2009: Restoring Financial Stability: How to Repair a Failed System. Hoboken, NJ: Wiley■ Wieandt, Axel and Sebastian C. Mönninghoff, 2011: The Financial Crisis: Observations and Implications. zfbf, Vol. 63, pp. 508–530■ Wieandt, Axel, 2017: Unfinished Business: Putting European Banking (and Europe) Back on Track. Göttingen: V&R unipressOptional Readings■ Hellwig, Martin and Anat Admati, 2013: The Bankers' New Clothes: What's Wrong with Banking and What to Do about It. Princeton, NJ: Princeton University Press■ Schmidt, Reinhard H., Andreas Hackethal, and Marcel Tyrell, 1999: Disintermediation and the Role of Banks in Europe: An International Comparison. Journal of Financial Intermediation, Vol. 8, No. 1–2, pp. 36–67■ Reinhart, Carmen M. and Kenneth S. Rogoff, 2009: This Time is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press■ Acharya, Viral V., Thomas F. Cooley, Matthew Richardson, and Ingo Walter, 2011: Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance. Hoboken, NJ: Wiley■ Blundell-Wignall, Adrian and Paul Watkinson, 2010: Thinking Beyond Basel III: Necessary Solutions for Capital and Liquidity. OECD Journal: Financial Market Trends, Volume 2010, No. 1, available at: www.oecd.org/finance/financial-markets/45314422.pdf■ Weiss, Hans and Axel Wieandt, 2000: Value-Based Management in Banking: A European Perspective, Corporate Finance Review, July–August, pp. 16–25
Lecture, reading assignments
Written exam (80%): Exam format will follow the exercises at the end of the respective chapters in Dermine (2014); students are therefore encouraged to do the exercises in preparation for the exam; solutions can be found at the end of the Dermine (2014) book

Oral participation (20%): Students are expected to come to class prepared and put nameplates on display in the classroom

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