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Introduction

Welcome to this module on Bank Financial Management. At the outset, it is worth noting that this module has a somewhat more applied feel to it than many other modules in the Master’s and Postgraduate Diploma programme, focusing as it does on the microeconomic problems of financial management of banking firms. This does not mean, however, that the module is devoid of theoretical interest.

Learning outcomes

This module examines the role and importance of bank financial management to the modern bank. It teaches the basic models of financial management taught by University Economics Departments and Business Schools, which were constructed from the experience of mature capitalist economies. The module discusses the various trends shaping banking markets, such as institutionalisation, securitisation, globalisation and concentration.

When you have completed this module, you will be able to:

  • discuss trends affecting the whole financial services industry
  • assess the implications of change for bank risk management
  • outline how the behaviour of banks has been modelled
  • identify the risks facing bank financial managers
  • explain the need to adapt risk management procedures to an increasingly international financial system
  • discuss how interest-rate risk can be managed using hedging activities through the use of financial derivatives and securitization
  • explain why funding mix and costs are important to bank management when making loan and investment decisions
  • discuss how credit risk and default premiums are assessed and monitored
  • analyse the relationship between bank performance and capital adequacy

Study materials

Study guide

The module study guide is carefully structured to provide the main teaching, defining and exploring the main concepts and issues, locating these within current debate and introducing and linking the assigned readings.

Key texts

Koch TW & SS MacDonald (2015) Bank Management, 8th Edition, Cengage Learning.

Readings

Throughout the module you will be directed to study a selection of readings, including journal articles, book extracts and case studies that are of particular relevance and interest to the topics covered in the module.

Virtual learning environment

You will have access to the VLE, which is a web-accessed study centre. Via the VLE, you can communicate with your assigned academic tutor, administrators and other students on the module using discussion forums. The VLE also provides access to the module Study Guide and assignments, as well as a selection of electronic journals available on the University of London Online Library.

Module overview

Unit 1 Banking Innovations and Risk
  • 1.1 Introduction
  • 1.2 Bank Management and Bank Financial Management
  • 1.3 'The good old days': A Simple Balance Sheet View of Banking
  • 1.4 The Transformation of Banking – 1970 to 2007
  • 1.5 Financial Innovation
  • 1.6 Implications of Banking Innovations for Bank Financial Management
  • 1.7 An Assessment of Credit Risk Transfer
  • 1.8 Conclusion
Unit 2 Bank Accounts: A Useful Tool if Handled with Care
  • 2.1 Introduction
  • 2.2 The Bank's Balance Sheet: An Introduction
  • 2.3 The Bank's Income Statement
  • 2.4 Fair Value and Mark-to-Market Accounting: A Hot Topic with Real Potential Effects
  • 2.5 Conclusion
Unit 3 Bank Valuation
  • 3.1 Introduction
  • 3.2 The Functions of Bank Financial Managers
  • 3.3 The Risks Facing Bank Financial Managers
  • 3.4 The Value of the Banking Firm
  • 3.5 The Difference Between Market and Book Value
  • 3.6 Performance Analysis Using Financial Ratios
  • 3.7 Conclusion
Unit 4 Bank Risk Management – Liquidity Management
  • 4.1 Introduction
  • 4.2 Bank Risk Management
  • 4.3 Concepts of Liquidity and Solvency
  • 4.4 Sources of Liquidity
  • 4.5 Measuring Banks' Liquidity
  • 4.6 Practical Liquidity Management
  • 4.7 Payments System Risk and its Potential Impact on Bank Liquidity
  • 4.8 Conclusion
Unit 5 Bank Risk Management – Interest Rate Risk Management
  • 5.1 Introduction
  • 5.2 Interest-Rate Risk Management
  • 5.3 GAP Analysis
  • 5.4 Duration Analysis
  • 5.5 Hedging Interest Rate Risk Off Balance Sheet
  • 5.6 Conclusion
Unit 6 Cost of Funds and the Funding of Operations
  • 6.1 Introduction
  • 6.2 Measuring the Cost of Funds
  • 6.3 A Note on the Cost of Capital
  • 6.4 Using Cost of Funds Measures
  • 6.5 Risks Associated with Raising Funds
  • 6.6 Conclusion
Unit 7 Bank Risk Management – Credit Risk
  • 7.1 Introduction
  • 7.2 Credit Risk
  • 7.3 Credit Risk and Default Premiums
  • 7.4 Loan Administration: General Procedure
  • 7.5 Credit Assessment
  • 7.6 Loan Pricing
  • 7.7 Problem Loans
  • 7.8 Conclusion
Unit 8 Capital Management
  • 8.1 Introduction
  • 8.2 Basel Accords' Rules and Categories of Bank Capital
  • 8.3 Conclusion
  • Appendix 8.1 ‘Report for G7 Summit’

Tuition and assessment

Students are individually assigned an academic tutor for the duration of the module, with whom you can discuss academic queries at regular intervals during the study session.

You are required to complete two Assignments for this module, which will be marked by your tutor. Assignments are each worth 15% of your total mark. You will be expected to submit your first assignment by the Tuesday of Week 6, and the second assignment at the end of the module, on the Tuesday after Week 10. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Virtual Learning Environment.

You will also sit a three-hour examination on a specified date in September/October, worth 70% of your total mark. An up-to-date timetable of examinations is published on the website in April each year.

Module sample

Click on the link below to download the module sample document in PDF.