Banking

obligatory courses

It is worth to have completed courses in: Financial System of Economy, macro- and micro economics and accounting.

Classroom

Central banking (functions, objectives, policy instruments), types of banks and banking operations, payment system, credit activity of banks, balance sheet and income statement of commercial banks, efficiency ratios of banks, risk in banking, electronic banking

The functioning of the banking system in Poland is discussed on the model of market economy banking systems in the context of Poland’s accession to the European Monetary Union. Classes are more practical in nature. Students assess, inter alia, the creditworthiness of companies based on their financial statements, estimate the foreign exchange risk and liquidity risk on the basis of banks’ balance sheets and off balance sheet positions, prepare presentations on the thematic subject.

Lecture:

1. Two-tier banking sector - the central bank.

• Two-tier banking system: central bank, commercial banks.

• Functions of central bank and structure of central bank's balance sheet.

• The mechanism of money supply - money creation multiplier.

• Monetary policy instruments of central bank - required reserves ratio on deposits, exchange rate policy, interest rate policy, policy of open market operations.

• The problem of central bank’s independence, NBP and its decision body: the Monetary Policy Council.

• Banking supervision: its evolution and contemporary design (the Polish Financial Supervision Authority).

• The European System of Central Banks (ESCB) and its bodies (ECB, NBC) as the central bank of the European Monetary Union.

• Problems with Polish accession to the European Monetary Union and adopting the euro.

2. Savings banks as compared to other financial intermediaries

• Universal banking versus specialised banking.

• Savings banks, specialised banks (mortgage, installment loans, building societies and credit unions).

3.Services and banking operations

• Classification of banking operations in the Banking Act: active, passive and intermediary operations.

• Methods of cashless bank transfers: credit order, direct debit, cheque, payment cards, collection of invoices, letters of credit.

• Interbank clearing systems - KIR, SYBIR, ELIXIR, SORBNET, SWIFT, TARGET.

4. Bank lending activities

• Credit procedures in banks. Strategy of credit extension in banks.

• Stages of lending activity in banks: preparatory stage, granting and servicing of loans. Credit contract and its components.

• Methods of assessing creditworthiness of customers: rating and scoring.

• Ratios of and limits to credit portfolio concentration in banks.

• Legal forms of loans’ collaterals (financial collateral, credit risk transfer tools, mortgage, etc).

• Classification of credit portfolio and reserves and provisions for nonperforming loans.

• Dealing with bad loans - the judicial restructuring, bankruptcy.

5.Risk in banking business

• Management of bank’s assets - loan portfolio and investment portfolio of banks. Management of bank's liabilities - sources and cost of capital raising.

• Role of bank's own capital in reduction of its risks.

• Risks in banking business: credit risk, liquidity risk, insolvency risk, interest rate risk, exchange-rate risk, operational risk, etc.

• Methods used in assessment of bank's exposure to different types of risks (e.g. gap analysis).

6. Credit Risk

• Pillars of the New Basel Capital Accord (Basel II).

• Use of external ratings in credit risk assessment of individual customers.

• Internal ratings - method of value at risk (VaR - Value at Risk).

• Portfolio risk - rule of risk dicersification.

• Capital requirement for credit risk.

7. Liquidity risk

• Classification of bank assets and liabilities according to their maturity and due dates.

• Golden rule in banking.

• Principle of bank’s deposit sedimentation and principle of shifts in maturity dates of assets. Securitisation as a method of liquidising assets.

• Liquidity balance sheet of banks. Bank's balance sheet items due to their maturity.

8. Foreign exchange risk

• Measure of bank's exposure to currency risk. Individual foreign exchange positions and the total foreign currency position.

• Polish Financial Services Authority standards for foreign-exchange risk management.

9. Interest rate risk

• Definition of interest rate risk.

• Assets and liabilities sensitive to changes in interest rates: , methods used in measurement of interest rate risk: the repricing gap model and the duration gap model.

• Principles of functioning of interbank money market – WIBOR, WIBID, LIBOR, EURIBOR rates.

• Methods of hedging of interest rate risk – interest rate swaps and FRA contracts as examples of instruments used to manage interest rate risk.

10. Insolvency risk

• Capital requirements for different types of risk.

• Capital adequacy ratio – definition of core capital and risk weights.

11. Commercial savings bank as a company – elements of its financial statements

• The balance sheet structure of commercial savings bank.

• Profit and loss account in commercial banks - banking profit, operating profit, gross and net profits.

• Key indicators of banks’ financial soundness.

Workshops:

1. Two-tier banking system, central banks, banking systems in chosen countries – Poland, European Monetary Union, USA, Great Britain (NBP, ECB, FED, Bank of England), functions, objectives, policy instruments, independence and organisational structure of central banks, foreign exchange reserves, seigniorage, analysis of balance sheet and profit and loss account of central bank, Eurozone – convergence criteria, euro – single euro currency, monetary policy (expansionary and contractionary policy), tendencies on the market of financial intermediation (securitisation sensu stricto and largo, disintermediation, Internet and electronisation of finance, globalisation, technical progress, liberalisation and deregulation versus reregulation, new innovative banking products, lateralism).

2. Types of banks according to Polish Law, universal and specialised banks, banking operations (legal typology and typology corresponding to balance sheet and income statement of banks), cashless methods of payment and payment instruments – credit transfer, direct debit, cheques (paper and electronic), payment cards (credit, debit, charge and prepaid as well as virtual), mobile payments, Single Euro Payments Area (SEPA), documentary collection, letter of credit; clearing and settlement, interbank clearing and settlement systems – KIR, ELIXIR, SORBNET, SWIFT, TARGET, Nostro and Loro accounts, international accounting standards in the accounting of bank groups – IASs/IFRSs.

3. Loan extension process in banks, credit procedures, bank’s credit strategy, stages of bank’s credit activity, credit application, methods of measuring clients credibility (inter alia credit rating and credit scoring), ratios of and limits to credit portfolio concentration, legal forms of securing credits, classification of credit portfolio and loan loss reserves and provisions for nonperforming loans, bank execution title, supervisory prudential regulations, examination and evaluation of bank’s financial soundness (analysis of balance sheet and profit and loss account of commercial bank, efficiency ratios, Du Pont analysis).

4. Risk in banking (different classifications, including the one of the Basel Committee on Banking Supervision, which comprises following risks: credit, market, interest rate, liquidity, country and transfer, reputation, operational, legal; methods of risk measurement and hedging risk), capital adequacy regulations – capital adequacy ratio, bank’s own funds and regulatory capital, capital requirements, New Basel Accord (Basel II).

5. Electronic banking (classification and description of electronic banking products distribution channels), digital signature, outsourcing, cross-border activity (European single bank licence), risk in e-banking (phishing, spoofing, sniffing, etc.), building the competitive advantage in banks.

1. Górski M., 2018, Rynkowy system finansowy, Warszawa: Polskie Wydawnictwo Ekonomiczne.

2. Czerwińska T., Jajuga K., (red.), Ryzyko instytucji finansowych, 2015, Warszawa: C.H. Beck

3. Gospodarowicz A., Nosowski A. (red.), 2012, Zarządzanie instytucjami kredytowymi, Warszawa: C.H. Beck.

4. Górka J. (red.) 2018, System finansowy w multiperspektywie, Warszawa: Wydawnictwo Naukowe Wydziału Zarządzania Uniwersytetu Warszawskiego.

5. Górka J., 2018, Banki, GAFAM, FinTech w gospodarce współdzielenia – equilibrium współpracy i konkurencji w „Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu”, nr 531 (temat numeru: „Bankowość, rynki finansowe, zarządzanie ryzykiem”), s. 149-158

6. Górka J. (red.), Chodnicka P., Karkowska R., Olszak M., Skuza S., Winiarski R., 2015, Materiały ćwiczeniowe do „Bankowości”, wydanie V, Wyd. Naukowe Wydziału Zarządzania UW.

7. Iwanicz-Drozdowska M, 2012, Zarządzanie finansowe bankiem, Warszawa: PWE.

8. Jaworski W. i Zawadzka Z. (red.), 2008, Bankowość, Warszawa: Poltext.

9. Kaszubski R., Tupaj-Cholewa A., 2010, Prawo bankowe, Warszawa: Wolters Kluwer.

10. Olszak M., 2015, Procykliczność działalności bankowej, Warszawa: C.H. Beck.

After the course completion (lecture and workshops) the student:

– distinguishes between functions of central bank and commercial banks,

– understands objectives and functions of monetary authority and role of credit institutions in rising country’s GDP, transforming savings into investments and providing clients with transaction banking products,

– lists banking operations and describes structure of bank’s balance sheet and off balance sheet positions;

– calculates and interprets ratios of economic efficiency in banks, compares and identifies causes of differences between efficiency of commercial banks basing on banks’ financial statements;

– lists prudential regulations in banking which have an impact on banks’ activity;

– identifies, analyses and measures different types of risk in commercial bank’s activity, including calculating capital requirements and capital adequacy ratio.

Final written exam (possible different types of questions), written tests on workshops, quizzes, essays, oral answers, attendance and active participation in classes. It is possible to verify student’s knowledge orally in case of suspicions of copying.

None, optional