Lectures Flashcards
Cost /income ratio
(personal expenses + general expenses incl. dep) / operating income
Pre Tax margin
Pre tax income/operating income
Compensation revenue ratio
Personal exp / operating income
ROA
Profit/ Average assets
Net interest margin
Net interest income / average assets
Gross margin in bp
operating income / average assets under management
EPS
profit attributable to shareholder/ average number of shares
ROE
Profit/ average equity
Economic profit
Adjs. Profit - cost of capital
Rev/cost/headcount growth
(V1-V0)/V0
New asset growth
net new assets/ Assets under management at time 0
Financial business volume
Client assets + credit volume
Market share & league tables
Business volume of bank / total volume of market
Different risks
Market risk, Credit risk, Loss & Operational risk and Loss absorption capacity
Market Risk measurements
Value at Risk, interest risk
Credit risk & Operational risk measurements
Risk weighted assets, expected losses, economic capital
Common Equity Tier 1 Ratio
Common Equity Tier 1 (CET1) / risk weighted assets
Leverage ratio
Equity/assets
P/E
Share price / earnings per share
P/B
Share price / book equity per share
Shareholder return
(P1-P0+D)/P0
Client assets
All deposits accounts, safekeeping accounts
Assets under management (AuM)
Client assets with investment purposes
Assets under Custody
Third party manages the assets
Compunded Annual growth rate (CAGR)
(Vn/V0)^(1/N) -1
3 Valuations for Assets
Nominal value
Cash & cash equivalents, due from banks and customers, mortage loans
Fair Value
Trading portfolio, positive replacement values of derivatives
Amortized cost
Reserve repurchase, debt instruments
3 Valuations of liabilites
Nominal value:
Due to bank, customer deposits
Fari value:
Trading portfolio liabilities
Amortized cost
Repurchase agreement
Bank Management Definition
Informal and formal steering mechanisms for coordination of various decisions
How to produce relevant information
Steering system definition
Interacting components forming intergrated whole with purpose
measurement –> comparison –> action –> measurement osv…..
Goal of steering systems
Goal is to influence behavior and decisions at different levels
Steering systems example
Center steering & cost accounting
Steering with KPI:s (culutre, profit)
Balanced scorecard
Sale performance measure
Why steering systems and not seperate decisions?
- Assurance of quality decisions
- Raising decision speed
- More rationality
- Consistency over goals
Challanges facing Banking Management
- Combination of goals (profitability, safety, liquidity)
- Interaction of centralized and decentralized decision
- Complexity of services and processes
Credit Risk Definition
Risk arising of non payment installments due to borrower no being able to pay
Is credit risk a big risk?
Yes, the biggest risk run by banking institutions
Big part of business (lending and borrowing)
4 different parts of credit risks
Default risk
Creditworthiness
Issuer/borrower risk
Counterparty risk
How can credit risk be measured?
Regulatory framewrk - Basel 1
Ratings from agencies
Credit spread
Credit default swap
a contract between two parties in which one party purchases protection from another party against losses from the default of a borrower for a defined period of time.
Market risk definition
Losses on adn off balance sheet from movement in market prices
DVO1
Hur PV ändras med en bp change i interest rate
Value at Risk (VaR)
Tries to capture unexpected change in value in a functioning market
Worst possible loss in a normal market
Operational risk definition
Risk, direct or indirect loss from failed internal processes & systems
3 issues with operational risks
Measurement: hard to measure
Management: how can it be controlled
Mitigation: can you transfer it?
How to identify operational risk
Common language
Define; people risks, process risks and tech risks osv
Form in-house of experts
Loss data collection
3 Methods basel 2 / operational risk
BIA= average gross income * 0,15
TSA = average cap requirement
AMA = Advanced measurment approach
Basel 1,2 &3 områden
Basel 1: Minimum capital requirements
Basel 2: Supervisory review purposes
Basel 3 : Market discipline
Goal of Basel 1
So that banks have a capital amount to bring stability to industry
Basel 2 calculations for market risk
Standard approach: DVO1
Internal Model Approach: Var and expected shortfall
Basel 2 calculations for credit risk
Credit risk = exposure * default prob *(1- recovery rate)
Basel 2 calculations for operational risk
TSA
BIA
AMA
