CdLM Business Administration

The course aims to provide students with in-depth knowledge of the capital market,
for a valid preparation for work.

The module will be divided in two parts.

The first one will offer an in-depth knowledge of banking asset management:

- shares and bonds management;

- risk adjusted performance (RAP) ratios;

- selection of the optimal portfolio for the investor;

- economic theories

and will be supported by different exercises.

The second one discusses banks which are one of the major actors in capital markets. We begin by considering why banks are special, which involves identifying the roles banks play, such as, financial intermediation and asset transformation. Due to their special nature in the economy, banking has tended to be heavily regulated. We classify types of bank regulation and examine the rationale for regulation using an asymmetric information framework, which helps to identify unintended consequences of regulation. Next, we turn attention to the management of banks; specifically, we explain how banks are managed in terms of liquidity management, and asset and liability management. We deepen our discussion by investigating the role of capital and post-GFC developments in the regulatory framework as enshrined in the Basel Accords and the concept of risk-adjusted capital requirements. Next, we discuss bank business models, and discover how researchers identify different bank business models and evaluate the relative performance of these different bank business models. We examine the process of securitisation, which allows banks to move assets off their balance sheets by creating securities that are bought and sold in the capital markets. Our penultimate discussion examines reward structures. Banks’ compensation arrangements form part of their corporate governance structure, which was heavily criticised following the GFC. We discuss the structure of executive remuneration and how compensation contracts contain implicit incentives that impact bank performance. Lastly, we provide a broad overview of the rapid growth of FinTech, and study claims that FinTech will decentralise banking and finance. We evaluate developments through the lens of multilateral agencies, such as, the Financial Stability Board, which are charged with maintaining financial stability.

By the end of the module, students should be able to:

FIRST PART

• Know the most important Bond and Stock theories.
• Calculate the optimal risky portfolio.
• Do asset management.
• Calculate the RAP ratios.

SECOND PART

• Appreciate the special role of banks in the economy.
• Understand the rationale for bank regulation and the features are of the government safety net.
• Evaluate the main principles of bank management.
• Identify different bank business models and evaluate their effects on bank performance.
• Critically evaluate the design of executive compensation in banking.
• Appraise the emergence and rapid growth of FinTech.

FOR BOTH THE FIRST AND THE SECOND PART

KNOWLEDGE AND UNDERSTANDING

1) Learning is aimed at understanding contents.

ABILITY TO APPLY KNOWLEDGE AND UNDERSTANDING

2) Students should be able to solve exercises and problems.

AUTONOMY OF JUDGMENT

3) Learning should be "critical". The student should develop autonomy of judgment on the arguments studied and on the contemporary reality (TG and specialized financial magazines read listening).

COMMUNICATION SKILLS

4) Active class participation is important to demonstrate communication abilities.

LEARNING ABILITY

5) All these points will contribute to the final judgment.

Bond Analysis

- The market features.

- Supply and Demand of Bonds (curves).

- Fisher theory, Keynes theory and Friedman theory.

- Exercises.

Stock analysis

- The market features.

- Financing new enterprises: business angels and crowdfunding.

- The risky portfolio management:

• the Capital Asset Pricing Model
• the Modern Portfolio Theory
• the Risk Adjusted Performance Ratios.

- Exercises.

BANKSWhy Banks are Special

• Why Banks are Special
• The Rationale for Bank Regulation
• ALM and Liquidity Management
• Bank Capital and the Regulatory Architecture
• Bank Business Models
• Securitisation
• Reward Structures in Banking
• FinTech

The course is developed in theory and exercises.

The theoretical discussion is often integrated with the presentation of "real cases or papers". Cases and papers are supplementary and optional readings. They are useful for better learning the subject and aimed at understanding the practical application of the topics.

Topics are then alternated with exercises, to better understand the arguments. The exercises are often carried out together with the theory, in order to allow an easy comprehension of the arguments.

EXAM

In classroom exam.

The Exam will be divided into two parts:

1. Professor Williams will assign a Report to be prepared for a certain date by Group of students (group organisation in classroom). Report will be sent to the Professor by mail.

Points Prof. Williams = 20

2. Professor Rovera will organize a written exam: 1 open question (5 points) and 1 exercise (5 points)

Total Time = 30 minutes

Points Prof. Rovera = 10

A teaching assistant will be available for exercises and questions.

The documentation will be provided by the Professors during the course (in digital format on Moodle)

Students should make every effort to participate in the lectures. We strongly advise students to read the relevant material which will be on Moodle.