UPDATED TENTATIVE SCHEDULE - FIN 4324: COMMERCIAL BANK MANAGEMENT - FALL 2009.  You are visitor number Hit Counter this semester.  This schedule is subject to change.  Most changes are to update information provided and used in class.  Professor Smith will note any changes in class but the student is also responsible for noting any updates.  The latest update date is given below.

LAST UPDATE:  11/17/09

Students are expected to bring the text to class and print out any assigned information for that class and bring it with them. 

Future Below Subject to Change 

 CLASS             TOPIC

1     Introduction, (An Overview of Banks and The Financial Services Sector),  print and read notes at www.bus.ucf.edu/ssmith/IntroFinInst.doc.  See assignment for next class below.  This material and all the chapters covered before the first exam will be included on the first exam.  Do not print but read the short article, "Lessons That Fit the Times:  Financial Meltdown Prompts Business Schools to Retool Some Courses," to help you understand the philosophy behind this class.

2   Ch. 2 (Impact of Government Policy and Regulation on the Financial Services Industry), print Ch 2 notes at www.bus.ucf.edu/ssmith/ch02notesF09.doc and bring to class. Also print FED Balance Sheet on 7/31/09 for recent example of FED actions. 

FOR SPRING 2010: 

The FED Balance Sheet and its development during the crisis are discussed by Chairman Bernanke on October 8, 2009.

You do not have to print the following: 

The FED Balance Sheet is discussed by Chairman Bernanke on April 3, 2009.

Federal Reserve Liquidity Facilities Extended (2/3/09) - good brief explanations of liquidity facilities

Do not print but skim underlined portions of World Credit Crisis Timeline as of 08/07/09.  We will cover this in class to give the student a feel for the major historical events that have recently occurred in the U.S. and the rest of the world.

Potential Other Information that may be discussed in class for this lecture but should not be printed for class unless directed by instructor:

Trouble Asset Relief Program purchases as of 7/21/09

FDIC's Temporary Liquidity Guarantee Program (FDIC Quarterly Banking Profile, March 2009) - to the extent that banks can offer debt at a lower cost with the TLGP than without, their costs decrease and profits increase. 

Financial Reform Plan (6/17/09)

       
3   Ch. 3 (Organization and Structure of Banking and the Financial Services Industry) and Ch. 4 (Establishing New Banks, Branches, ATMs, Telephone Services and Web Sites), print Ch. 3 notes and Ch. 4 notes and problems and bring to class.
Optional Readings: 
 Bank ATMs and ATM Surcharges (FRBSF Economic Letter, 12/16/05)
 Corporate Governance:  Where Do Tenth District Community Banks Stand?  (Financial Industry Perspectives, 4th Quarter 2004, FRB of Kansas City)
The Economic Performance of Small Banks, 1985-2000 (Federal Reserve Bulletin, November 2001) 
The Role of Community Banks in the U.S. Economy  (Economic Review, 2nd Quarter 2003, FRB of KC)

 4.  Ch. 5 (Financial Statements of Bank and Their Competitors) print and read Ch. 5 Notes.  The problem for this class and its solution is at the end of the Ch. 5 Notes.
EXAM - From a list of alphabetically arranged items you will have to construct a bank's balance sheet or income statement with all items in the correct order in a manner similar to the problem at the end of the Ch. 5 notes.
 Selection of  each student's bank holding company for the class project is due by this date and has to be approved by the instructor.  Each day that the selection is late will cost the student 5% of the class project grade for each late calendar day.  The project has 10 key financial ratios of interest with four pieces of analysis for each ratio, e.g., the ratio, what is the percentile for the peer group, is the ratio better or worse than the peer group, and s the ratio better or worse than the previous period) for a total of 40 points.  The information comes from a 27-page bank performance report that will be discussed in class during the semester.  Directions and links to examples may be found at www.bus.ucf.edu/ssmith/BHCAnalysisProject.doc.
Optional Related Readings:  Fair Value Accounting (Federal Reserve Bulletin, Winter 2005)


5.  Ch. 6 (Measuring and Evaluating Performance of Banks and Their Principal Competitors) PRINT notes  and skim  pp. 6, 8, 10, 13, and 14 from Quarterly Banking Profile March 2009.
EXAM - Be able to calculate and/or define (know formula) any of the ratios in the assigned Chapter 6 problems in the notes. 

6.    Individual Bank Holding Company (BHC) and Peer Group Analysis for Large BHCs
Print cover page and pages 1, 4, 12, and 22 (this is equivalent to pp. 1, 2, 5, 14, and 26 on pdf version of paper due to cover page being page 1) of the 6/30/09 SunTrust Banks, Inc. Performance Report (www.bus.ucf.edu/ssmith/STIPerfRep2009Q2.pdf) and bring to class. You should also bring the information for you class project BHC because you will have to evaluate similar information and the discussion should be useful to you.

See Forbes Global 2000 Banks, Diversified Financials, and Insurance (4/9/09)

See Foreign Owned Top 50 U.S. Bank Holding Companies (6/30/08)

EXAM - From the printed pages of a bank holding company Performance Report be able to provide an analysis of one or more components of the bank's performance during a time period covered by the Report.  You will need to know and use the ratios covered in the previous class and relate those ratios to its peer group's averages and percentiles and over time.  Examples of the ratios include net interest margin, net noninterest margin, return on assets, fee income ratio, efficiency ratio, net interest margin after provisions for loan losses, (fiduciary income/total non-interest income), (service charges on deposits/total non-interest income), (personnel expense/total overhead expense), (net occupancy expense/total overhead expense). 
 

7. Ch. 7 (Asset-Liability Management) (Prob. 3, 5, 6, 8) Print notes and solutions and bring to class.
 EXAM - Be able to do problems similar to Chapter 7 problems of 3, 5, 6, and 8 and understand relationships discussed in class or notes.
Print page 8 (this is equivalent to p. 10 on pdf version) of the 6/30/09 SunTrust Banks, Inc. Performance Report (www.bus.ucf.edu/ssmith/STIPerfRep2009Q2.pdf) and bring to class. You should also bring the information for you class project BHC because you will have to evaluate similar information and the discussion should be useful to you.


8.  Ch. 7 (Asset-Liability Management) (Prob. 13, 17,  18)  Print notes and solutions  and bring to class. (These are the same notes for previous class.) 
Do NOT PRINT the following/ article on how international banks have handled interest rate risk and its effect on net interest margin but it will be discussed, “Interest Rate Risk and Bank Net Interest Margins,” BIS Quarterly Review, December 2002 at www.bis.org/publ/qtrpdf/r_qt0212g.pdf .
EXAM - Be able to do problems similar to Chapter 7 Problems of 13, 17, 18, negative duration example, and understand relationships discussed in class or notes..

9.  Complete material for first exam and review. Chapter 6 Additional Problems   Extra Chapter 7 Problems

10. Exam 1

11. Ch. 8 (Hedging Tools) (Prob. 8-3, 8-7, 8-8).  Print notes and solutions (covers chapter 8) and bring to class.  Dr. Smith will also discuss the major characteristics related to the use of derivatives by banks from the OCC's Quarterly Derivatives Fact Sheet (not required reading).  Print Swap Example and bring to class.  Do not print  but also look at recent examples of currency exchange rates.  Do not print but the following article (see p. 52 of article) will be discussed in class, “The Euro Interest Rate Swap Market,” BIS Quarterly Review, March 2003 at www.bis.org/publ/qtrpdf/r_qt0303f.pdf . To see what non-financial industries use derivatives skim ISDA Survey of world's largest 500 companies on derivatives usage. (April 23, 2009)
EXAM - Be able to do problems similar to Chapter 8 Problems, calculate the price of a future, and know the major characteristics related to the use of derivatives by banks.

 12.  Ch. 9 (Risk Management Using ABS, Loan Sales, Credit Standbys and Credit Derivatives)  and   Print notes and solutions, and The Role of Securitization in Mortgage Lending (Chicago Fed Letter, Nov. 2007) and bring to class.
EXAM - From Ch. 9 know incentives to securitize; possible income sources from securitization, and characteristics of  3 types of mortgage-backed securities by timing of payments (pass-throughs, CMOs, MBBs), characteristics to distribute default risk (guarantees, subordination, over-collateralization, excess spread, geographic diversification, and resecuritization into CDOs and SIVs), know characteristics of  loan sales, SLCs and other guarantees, and credit derivatives.  

13.  Ch. 10 (Investment Function in Banking and Financial Services Management) (Prob. 5).  Print notes and solutions and AFS vs HTM, and Trading Account example, and National Recognized Statistical Rating Organizations (NRSROs) by SEC.  and bring to class.   EXAM - Possible questions from chapter 10 include a problem similar to Prob. 10-5 and 10-6; a question about the 5 investment strategies and their advantages; questions about investment choice factors; differences in accounting for AFS, HTM, and trading assets and liabilities; and NRSROs.

14. Ch. 11 (Liquidity and Reserve Management)  Print notes and solutions and bring to class.  Do not print Liquidity Measures Examples that will be covered in class.
Optional Related Readings:
"What is Liquidity Risk" (FRBSF Economic Letter, Oct. 24, 2008)
 Principles for Sound Liquidity Risk Management and Supervision (Basel Committee on Banking Supervision, 2008), includes recent liquidity problems associated with financial markets stress in 2007-08;
Speech by FRB Kroszner on Liquidity Risk Management - March 3, 2008 (good update with credit crisis);
Sound Practices for Managing Liquidity in Banking Organizations (Basel Committee on Banking Supervision, 2000); good overview and includes foreign currency exposure;
 EXAM - possible questions from Ch. 11 include three liquidity management strategies; liquidity indicators definitions and relationship with liquidity;  reserve requirements, computation and maintenance periods; sweep accounts; components of Cash and Due; and how to compute balance required to compensate for correspondent services.

15. Ch. 12 (Managing and Pricing Deposits) (Prob. 12- 4,12- 5).   Print notes and solutions and bring to class.
Optional Related Readings:    U.S. Consumers and Electronic Banking, 1995-2003 (Winter 2004, Federal Reserve Bulletin); The Use of Checks and Other Noncash Payment Instruments in the United States  (August 2002, Federal Reserve Bulletin);  Who Benefits from Increasing the Federal Deposit Insurance? (Economic Commentary, FRB of Cleveland, 9/15/01);  and  Recent Trends in Deposit and Loan Growth: Implications for Small and Large Banks (Chicago Fed Letter, December 2000)
EXAM - possible questions include discuss different costs for demand and time deposits; calculate the cost of a deposit and know the relationship between the cost and the various parts of the cost equation as discussed in class; problems similar to Prob. 12-4, 12-5. 

16. Ch. 13 (Managing Nondeposit Funds) Print notes and solutions and Probability of Fed Funds Target Change (see updated example for 10.17.08) and bring to class. SKIM Fair Value Difficulties article.  We will look at the table in LIBORUSD, and graphs in Flight to Quality Example (see updated graphs FIG 1-3 for 7/31/07-9/23/09) but you do not have to bring them to class.
 

EXAM - possible questions include know characteristics of alternative sources of nondeposit funds from Ch. 13 notes; know how to determine the probability of a fed funds target rate change from the fed funds futures; know relationships discussed in Flight to quality examples and graphs.         

17. Ch. 14 print notes and the discussion notes on Payments Systems and bring them to class. 

Optional Reading:
The Status of SEPA in 2009 (GTNEWS.com, August 4, 2009)
Dealing with SEPA - Challenges and Opportunities (GTNEWS.com, January 2, 2008)
The Interchange Fee Debate: Issues and Economics (June 2006, The Region, FRB of Minneapolis)
Debit Card Competition: Signature versus PIN (December 2005, Chicago Fed Letter)
 “Institutional Asset Managers:  Industry Trends, Incentives and Implications for Market Efficiency,” Ingo Fender, BIS Quarterly Review, September 2003, pp. 75-86, at www.bis.org/publ/qtrpdf/r_qt0309h.pdf . 
Exam - Know characteristics of fee services (trading revenue, net securitization income, service charges on deposits, investment banking/brokerage services, mutual funds, annuities, trust services, insurance products) and potential benefits and concerns related to the services. Know the multi-card issuer payment system and the three parties in the payments systems and the factors that affect their behavior.

18. Ch. 15 (Management of Capital)  Print notes (see updated measure of tier 1 capital effective 10/17/08) and bring to class.  Print pages 12 and 14 (this is equivalent to pp. 14 and 18 on pdf version) of the 6/30/09 SunTrust Banks, Inc. Performance Report (www.bus.ucf.edu/ssmith/STIPerfRep2009Q2.pdf) and bring to class. You should also bring the information for your class project BHC because you will have to evaluate similar information and the discussion should be useful to you. 
EXAM - Ch. 15 material, possible questions include know functions of capital; order of loan losses effect on balance sheet; types of bank capital; general description of three regulatory measures of bank capital; general risk relationships between different on-balance sheet and off-balance sheet items in computing level of risk-weighted assets; calculating risk-weighted assets.

Optional Reading: 
 Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version (Bank for International Settlements (BIS), June 2006)
 Financial Market Signals and Banking Supervision:  Are Current Practices Consistent with Research Findings? (FRBSF Economic Review 2006);
 Capital Standards for Banks:  The Evolving Basel Accord (September 2003, Federal Reserve Bulletin)

19.  Complete material for second exam and review.

20.Exam 2

21.  Print the following and bring to class:  Ch. 16 Notes (Lending Policies and Procedures: Managing Credit Risk) & Ch. 17 Notes (Lending to Business Firms and Pricing Business Loans), and Lecture Notes at Loan Pricing, Loan Pricing Example,  Loan Terms, Loan Rates (see Base Commercial Lending Rates and Maturity Premiums spreadsheets),  Bank Lending Risk Ratios, see Net Charge Offs and Recessions, and skim  pp. 21, 25 and 47 from Quarterly Banking Profile December 2008.
 EXAM - Ch. 16 & Ch. 17 material and handouts, possible questions include know 5 parts of building and pricing loan framework, be able to identify and define 5 Cs of Credit and give examples relevant ratios or information sources, be able to discuss non-interest rate risk/return control procedures and their effects
Optional Readings: 
 Survey of Terms of Business Lending -  (quarterly);  For a detailed description of Survey,   see Recent Changes to the Federal Reserve's Survey of Terms of Business Lending  (Federal Reserve Bulletin, August 1998).
  Out-of-market Small Business Loans (FRBSF Economic Letter, 2009-07, February 13, 2009)
 Comparative Analysis of the Determinants of Financial Distress in French, Italian and Spanish Firms - (Danmarks NationalBank Working Papers 2005, #26, May 18, 2005) - compares across-country models with in-country models.
 The Syndicated Loan Market:  Structure, Development and Implications (BIS Quarterly Review, December 2004)
  Senior Loan Officer Opinion Survey on Bank Lending Practices (quarterly) - FRB questions cover changes in the standards and terms of the banks' lending and the state of business and household demand for loans.
  2008 Survey of Credit Underwriting Practices (annual) - Office of Comptroller of Currency (OCC) surveys national banks on ten categories of loans
 Recent Developments in Business Lending by Commercial Banks (Federal Reserve Bulletin, December 2003)
Trade Credit:  Why Do Production Firms Act as Financial Intermediaries?  (Q3, 2003, Business Review, FRB of Philadelphia)  (Good article on trade credit with some international comparisons)
Now and Then:  The Evolution of Loan Quality for U.S. Banks (Current Issues in Economics and Finance, April 2003, FRB of NY) - compares decline in loan quality from 4Q'99 to 3Q'03 with late 1980s and early 1990s.
Survey of Finance Companies, 2000 (Federal Reserve Bulletin, January 2002), pp. 1-5 only.
 

22-23.  Ch. 16 & 17, and associated notes from previous lecture
EXAM - Ch. 16 & Ch. 17 material and handouts, possible questions include understand general characteristics of commercial loans, e.g., maturity, administrative costs, base rates, collateral, callable, prepayment penalty, commitments; be able to define or calculate or interpret the bank lending risk ratios    

24. Ch.. 17 (Prob. 17-3 (assume wages is lease payment), and Prob. 17-4, print solutions), Lending Credit Risk Analysis Handout (13 pages), Business Credit Report , Executive Summary, and Sample Form(Experian),   and  S&P's White Paper on Measures of Corporate Earnings (Business Week, 5/14/02) and Investors, It pays to mind the GAAP gaps (WSJ, 9/18/09, p. C1).  DO NOT PRINT but we will examine the relationship between Operating Earnings, GAAP earnings, and stock price.
 EXAM - Ch. 17 material, possible questions include define and calculate the ratios in problem 17-3 as provided in class; or be able to do determine if an item is a source or use similar to problem 17-4; or some aspect of S&P White Paper. Additional Sample Problems

25.  Ch. 18 Notes (Consumer Loans, Credit Cards, and Real Estate Lending) , Credit Card Profitability Example; New Credit Card Rules, 9/29/09;  Credit Reports; Credit Scores, What Influences Them, According to Fair Isaac (Credit Information Center, July 1999); What's the Point of Credit Scoring , Loretta J. Mester, Business Review, Federal Reserve Bank of Philadelphia, September 1997, pp. 3-16. (Be sure to scroll down the first page of article because it starts near the bottom of the page.);  How Bad Credit Costs You With Insurers; Can a prospect employer pull my credit report? (Orlando Sentinel, 1/30/08);  Study: Health Costs Spur Bankruptcy (2/02/05, Reuters);   New Bankruptcy Law Tightens Rules, Adds Paperwork - (consumeraffairs.com, 10/14/05) and p. 52 from Quarterly Banking Profile December 2008.  You may get a free personal credit report at www.annualcreditreport.com.  You may also get a FICO score for a small fee.
EXAM - Be prepared to answer questions about the articles.  Possible questions include the use of credit scoring for different types of loans (consumer, credit card, mortgages, small business, large commercial) and the benefits and limitations of credit scoring.  Understand the factors in credit card profitability, factors that influence credit scores and bankruptcy.
Optional Reading:
   Collecting Consumer Debt in America (Business Review, FRB of Philadelphia, Quarter 2 2007)
Recent Changes in U.S. Family Finances:  Evidence from the 2004 and 2007 Survey of Consumer Finances (Federal Reserve Bulletin, 2009)
Credit Report Accuracy and Access to Credit - (Federal Reserve Bulletin, Summer 2004);
Consolidation, Technology, and the Changing Structure of Banks' Small Business Lending (Economic and Financial Review, FRB of Dallas, Qtr. 1, 2001) 
  Senior Loan Officer Opinion Survey on Bank Lending Practices (quarterly) - FRB questions cover changes in the standards and terms of the banks' lending and the state of business and household demand for loans.
  2007 Survey of Credit Underwriting Practices (annual) - Office of Comptroller of Currency (OCC) surveys national banks on ten categories of loans

26-27.  Ch. 18, Print following notes, article and handbook and bring to class:  Mortgage Pre-Qualification, Mortgage Prepayment, also print Figures 1 and 2 of  Measuring Interest Rate Risk for Mortgage-Related Assets (FRBSF Economic Letter, January 1, 2000), Consumer Handbook on Adjustable-Rate Mortgages (Federal Reserve), Mortgage Rate Examples,  Mortgage Rate Relationships (10.30.06),  Mortgage Rate Sheet (10.30.06) (DO NOT PRINT),  Mortgage PMI, Mortgage Banking, Foreclosure Servicing Fees, and Mortgage Servicing Value Example,  Housing Mortgage Relief Bill,  Shopping Title Insurance, Title Insurance (7/21/09), and Housing Prices and Bank Loan Performance article.
 EXAM - Ch. 18 material, possible questions include know how to qualify someone for the maximum home loan or home price amounts, understand relationships between interest rates and effect of prepayment on loan values, know how to calculate PV of home loans under different scenarios of interest rates and prepayment rates, and understand relationships described in mortgage rate sheet. Know features of an ARM and how they relate to interest rates and  payments.
EXAM - know how to calculate the marginal cost of PMI and be able to relate the costs to the loan pricing framework; understand mortgage banking sources of income and risk; know how to calculate present value of servicing fees, given constant fees, runoff rates and discount rates.     

 Optional Related Reading: 
  The NY Fed has some very good data by state, and some by county, on the risk characteristics for prime, alt-A, and subprime mortgages, auto loans, credit cards, and student loans at http://data.newyorkfed.org/creditconditions/.
FNMA/FHLMC Conservatorship Discussion (FHFA, 9/23/08)
The Rise and Fall of Subprime Mortgages (Economic Letter, FRB of Dallas, Nov. 2007)
 Mortgage Refinancing:  The Interaction of Break Even Period, Taxes, NPV, and IRR (Financial Services Review, forthcoming)
Prime or not so prime?  An exploration of US housing finance in the new century - BIS Quarterly Review, March 2006)
   Laying the Foundation for a Mortgage Industry in Mexico - (Economic Letter, FRB of Dallas, Oct. 2006)
Mortgage Markets and the Enterprises in 2005 (OFHEO, September 2006)
   Housing Finance in the Global Financial Market (Committee on the Global Financial System, CGFS Paper #26, January 2006) - good analysis and international comparisons
New Information Reported under HMDA and Its Application in Fair Lending Enforcement, (Federal Reserve Bulletin, Summer 2005) - good description of residential lending in 2004.
 “The Danish Mortgage Market,” BIS Quarterly Review, March 2004 at www.bis.org/publ/qtrpdf/r_qt0403h.pdf .  An interesting look at the differences in the two countries' mortgage-backed securities and how the differences affect interest rate risk.
What are covered bonds? (Chicago Fed Letter, #257, December 2008)  

28. Ch. 18 Notes Print notes and bring to class:
EXAM - know how to calculate all the different interest rates in the lecture.

 

THE INSTRUCTOR DOES NOT PLAN TO USE THE FOLLOWING CHAPTERS OR MATERIAL UNLESS THERE IS AN UNEXPECTED CHANGE THAT WILL BE ANNOUNCED IN CLASS.  CHAPTERS 19 AND 20 ARE NOT INCLUDED IN THE ASSIGNED TEXT FOR THIS SEMESTER.

A1  Ch. 19 (Acquisitions and Mergers)  Print notes and merger Excel example and bring to class.

A2.  Ch. 20 (International Banking) Print notes and bring to class.
Optional Readings:  Foreign banks in emerging market economies: changing players, changing issues (BIS Quarterly Review, December 2005)
Global Integration in the Banking Industry (November 2003, Federal Reserve Bulletin)
Patterns in the Foreign Ownership of U.S. Banking Assets (November 24, 2000, FRBSF Economic Letter)
International Activities of U.S. Banks and in U.S. Banking Markets (September 1999, Federal Reserve Bulletin)