Fin 4323, Management of Financial Institutions

1
Fin 4323, Management of Financial Institutions

• Review for exam 2

2
Format of Exam

• 11 short answer, essay type questions are
  provided. You need to answer 10 of these as
  completely and accurately as possible.
• Each question will be graded individually based
  on the amount of knowledge and understanding that
  your answer communicates. You must communicate
  your thoughts effectively.

3
Exam Covers

• WSJ discussions
• Current Interest Rate environment, federal funds
  rate target and 10-year, Fed policy changes
• HSBS 2005 earnings and Frank Drurys presentation
• Hancocks dividend announcement
• Bernankes Speech on Monetary Policy and the
  Yield Curve and Comments on Community Banks
• Fairness of Credit Unions
• February jobs report and inflation
• New York State aiding poor neighborhoods
• Federal Home Loan Banks and Finance Board

4
Team work and UBPR

• UBPR format and how to use it
• Information about your bank, especially
  concerning first three lessons
• Be able to apply lessons in class to your bank

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Chapter 9 The Effective Use of Capital

• What is bank capital? Why do banks hold capital?
• Risk-based capital, tier 1 and total
• Goodwill
• Loan Loss reserve
• Subordinated debt
• Risk weighted asset size
• Off-balance sheet
• Three key risk-based capital ratios and prompt
  corrective action requirements
• The link between capital and asset growth. Role
  of ROA and dividend payout rate
• Example question
• Suppose a bank is viewed as undercapitalized
  today. Describe the various methods this bank
  could use to improve its capital position under
  todays risk-based capital system.
• FDIC Insurance premiums
• Basel II

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Chapter 1 Fundamental Forces of Change in Banking

• History of Banking Regulation
• Dual Banking, major regulators, CAMELS rating
• McFadden and Riegle-Neal. Glass-Steagall and
  Gramm-Leach-Bliley.
• Commercial banks and savings institutions and
  credit unions
• Bank holding company, Financial holding company
  and universal bank.
• Community Reinvestment Act
• Securitization
• Globalization

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HKM On the Uniqueness of Community Banks

• Community banks
• Soft versus hard information
• Credit scoring
• Relationship versus transactional banking
• Organizational structures
• S Corporation Banks
• Customer profitability
• Interest income versus non-interest income
• Deposit-driven versus loan-driven banks
• Bank Consolidation
• De novo banks
• Distinctions in bank performance

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Chapter 14 Global Banking

• Asset size, U.S. versus international banks
• Edge Act banks
• Universal banking
• Eurodollars and LIBOR
• Risks unique to international lending
• Foreign exchange risk
• Country and sovereign risk
• Interest rate parity

9
FDIC Outlook

• Evidence from examination of natural disasters
• Bank performance indicators, ROA, equity capital
  ratios, loan loss provisions and non-current
  loans.
• Financial health of banks in Katrina/Rita zone
• Challenges facing banks in face of Katrina/Rita

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Final Tips

• Dont focus exclusively on text probably not a
  good study tool.
• Look at notes. Look at old quizzes.
• Dont forget WSJ and current events discussions.
• Dont forget the teamwork on your bank.
• Dont cram. Come well rested.
• Be careful in writing up your answers and make
  sure they communicate your understanding.