Learning objectives
Students will develop:
1) basic knowledge on and understanding of the Italian prudential regulation and the general trends at European level (knowledge and understanding);
2) advanced knowledge on the main models for measuring and managing risks in the banking industry (knowledge and understanding);
3) the ability to apply measurement models with respect to the main risks (credit risk, operational risk, interest rate risk on the banking book, liquidity risk, concentration risk, market risk) (applying knowledge and understanding);
4) the ability to link risk measures with financial information (learning skills).
Students participating in the project work will also develop:
5) the ability to research, analysis and development of public data and information gathered also through interviews, with reference to strategies, risks management and capital adequacy (making judgements);
6) the ability to work in team and to organize and manage a field project (learning skills);
7) the ability to communicate the achievements, problems encountered and lessons learned, including an independent judgment (communication skills);
8) the ability to present the results of team projects, even with multimedia tools and applications (communication skills).
Prerequisites
Basic knowledge of Financial markets and institutions and Securities
markets and instruments
Course unit content
The course deals with risk measurement and management in financial institutions. Regulatory and supervisory requirements will be considered, along with a bank management perspective on capital adequacy and risk management.
Full programme
1. Prudential regulation: from Basel 2 to Basel 4.
2. Capital definition and management.
3. Credit risk: expected and unexpected loss.
4. Credit risk measurement according to prudential regulation. Capital requirements under Pillar 1. The standardized approach and the IRB - internal rating based approaches.
5. Rating agencies.
6. The bank’s balance sheet analysis.
7. Internal rating systems: rating assignment.
8. The internal rating: PD quantification (probability of default).
9. The internal rating: LGD (loss given default - loss given default) and its estimation models.
10. The internal rating: the concept of EAD (exposure at default).
11. The internal rating: rating validation.
12. VAR and unexpected losses (Creditmetrics).
13. ITR, Credit risk-adjusted performance measures and risk-based pricing.
14. Market risk.
15. Operational risk: definition and regulatory profiles, measurement.
16. Liquidity risk.
17. The interest rate risk on the banking book.
18. ESG-related risks
Bibliography
1. Sironi, The evolution of banking regulation since the financial crisis:
a critical assessment, Working Paper, November 2018, available on the Course website on elly
2. (Not mandatory) P. Schwizer, Risk Management and Value Creation in Banks, Università di Parma C.d.L. in Finanza e risk management, Dipartimento di Scienze economiche e aziendali, Create Mc Graw Hill Education, 2018 (excerpt from A. Saunders, M.M. Cornett, Financial Institution Management. A Risk Management Approach. McGraw Hill, 2018, Ninth Edition).
3. P. Schwizer, Risk Management – Additional Materials (Slides, Readings and Videos) available on the course website on elly.economia.unipr.it since the beginning of the course. Students will be able to download slides and readings from elly after having registered to the course.
Instructions on the project work and the final report for non-attending students will also be provided on the Course website.
Slides, videos and readings are an integral part of the Course Materials for both attending and non-attending students. Students are requested to control on a regular basis the Course website on elly for additional Materials and indications provided by the teacher.
Other suggested textbook (not mandatory):
A. Resti, A. Sironi, “Risk management and Shareholders’ Value in Banking”, Wiley Finance, 2007.
Teaching methods
Credits 9; 63 teaching hours, 6 of which dedicated to presentation of project works.
Teaching hours include frontal lectures and class exercises on the application of individual risk measures and related management models. Students will also discuss a case study on fraud risk.
Up to three assignments might be submitted to attending students during the first part of the Course, aimed at:
a) developing the ability of researching and analysing data on capital and risks;
b) reading and discussing in class international regulatory guidelines (Financial Stability Board’s original documents);
c) reading and discussing in class news and articles on banks’ capital adequacy and related trends.
Students attending the course will be involved in a project work. This activity is concentrated in the second part of the course and it implies the analysis and evaluation, in working groups, of the risk management system and capital adequacy of a sample of Italian and foreign banks. The classroom presentation of the project work will be done through short videos (30’) produced by the individual teams.
Non-attending students must perform a similar analysis on an individual basis and submit a written report that will discussed during the final exam.
Assessment methods and criteria
The exam will take place in different ways for students participating in the project work and for those who do not participate.
For students participating in the project work, the teacher assigns a grade to the outcome of the project carried out by each group, based on an assessment of the ability to learn, to apply knowledge, to make informed judgements, to communicate their knowledge and understanding in an effective way. This grade accounts for 40% of the final grade and is assigned to the group, in order to stimulate team spirit. The teacher takes into account the result of a peer evaluation carried out by the class, based on a grid proposed that considers the satisfaction of the classroom with respect to the following items (scale 1 to 4): mastery of the subject, clarity of exposition, the ability to arouse interest, use of language, homogeneity of the individual contributions, overall satisfaction. The result of the peer evaluation is counted to the extent of 50% of the project work’s grade. The remaining 60% of the final grade is assigned on the basis of an exam carried out in oral form. In this context, the knowledge, understanding and learning skills are assessed with two questions about some of the main risk measurement models examined in the course. The answers account for half of the final grade. The ability to apply knowledge is established on the base of one or more exercises or case studies. The final mark will be equal to the weighted average grade of the project work (40%) and the grade of the individual test (60%).
Attending students will also have the opportunity to take two intermediate written tests (1.5 hours each), instead of the oral exam (No pc, tablet, smartphones).
Should a student take or pass only one of the two tests, she/he has the possibility to take a partial oral exam on the same section of the Course program.
The written test will be structured as follows:
a) 4 multiple-choice questions on basic concepts (8 points);
b) 2 open questions on risk measures and risk management models (12 points);
c) 1 exercise on the application of individual risk measures and risk management models (10 points).
A grading curve will be applied to the assessment of the written test. All grades (Project Works, Peer Evaluation and Final Test) will be published on the course website on elly. Students will have the opportunity to comment their results with the teacher during office hours.
For students who do not participate in project works, the verification of the acquired knowledge and the ability to apply will be based on the evaluation of a final report produced on a bank (which will account for 20% on the final grade) and by means of an oral test conducted in a similar way to that described above. The report must be produced in word format (length ca. 10-12 pages) and will have to describe and critically analyze: the bank and its business model; the bank’s profitability; the bank’s risk management models and capital ratios. Students will have to include at the end of the report a personal assessment on the bank's capital adequacy compared to the risks taken. The students can consult documents and materials available on the bank’s website (annual reports, third pillar, etc.) The student will have to send the report per email to Prof. Schwizer some days before the oral exam, when it will be discussed.
The final mark will be 30 cum laude when all the parts of the exam (written text or oral exposition; teamwork or other forms of cooperative work) are excellent for completeness, clarity, brightness, vividness and organization of the answers, capacity of multidisciplinary connections.
Other information
2030 agenda goals for sustainable development
This Course contributes to the achievement of the UN Agenda 2030 Sustainable Development Goals
