This course is about the business of large banks that operate internationally in an environment characterized by globalization and deregulatory trends that may substantially evolve in the future. The course focuses on bank strategies and how they may or may not succeed in creating value. Over time, traditional bank franchise value has been eroded by competition from non-bank alternatives. How have banks responded to this threat? Recent events reflect that banks have taken on more risk, some with disastrous results. But how then can banks manage risk intelligently? And does this activity create value? And how do the turbulent events of the past year augur for the role of international banks going forward?
A critical reference point is the “market bank”, which does nothing but buy market assets and sell market liabilities. By understanding the characteristics of this model, the actual sources of value in real banks are more clearly seen. The course also emphasizes VaR analysis, RAROC, liquidity management and the evolving trends for loan trading, securitization and credit derivatives. It ends with a review of the institutional evolution of international banking, the international rules for bank capital, and an examination of recent crises.
The primary reading material is a set of readings made available in the casebook and on the website. In addition, recommended books are listed on the following page.
There are no examinations in this course. Students are graded based upon a research paper which each individual student submits (50%), two quantitative problem sets, a written exercise and a quantitative case write-up (20%) and class participation (30%). The research paper focuses on one particular international bank, examining its risks, its value and the sources of that value.
Prerequisite: a strong quantitative background in finance, including B6302
This is an upper-level course, somewhat quantitative in its approach. It is expected that students will have a good general background in finance and will be comfortable in handling the concepts of risk and discounted cash flow. When students have difficulty in this course, it is usually because of insufficient finance background.
Robert Fallon was a Columbia Business School faculty member from 2008 to 2016.