guy hargreaves acf-104. recap of yesterday review of maturity transformation, aggregation and risk...

Banking and Financial Institutions

Guy HargreavesACF-104

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Recap of yesterdayReview of maturity transformation,

aggregation and risk transformationReview of credit creation multiplierUnderstand how commercial banking

improves the efficiency of an economyAppreciate the role commercial banking has

in driving economic growthUnderstand the role commercial banks play

within financial markets

The general structure of commercial banks

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Today’s goalsOverview of structure of different types of

commercial banking enterprisesUnderstand the different departments and

roles of those departments within a typical commercial bank

Overview of units within a typical investment banking business

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Typical commercial bank unitsBoard of DirectorsManagement OfficeFinancial ControlRisk ManagementLegal and ComplianceOperationsHuman ResourcesInformation TechnologyFinancial MarketsWholesale BankingRetail Banking

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Typical investment bank unitsBoard of DirectorsManagement OfficeFinancial ControlRisk ManagementLegal and ComplianceOperationsHuman ResourcesInformation TechnologyFinancial and Capital MarketsMergers and AcquisitionsResearch

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BancassuranceAll commercial banking units +:

Insurance Funds management

For this course we are not focused on Bancassurance nor Universal banking models

Bancassurance models now tends to hold non-deposit taking businesses in separate companies under a holding company structure

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Typical Board of DirectorsStructure varies a lot!

Chairman – non-operational, strategic role CEO – executive and board member CFO - executive and board member CRO - executive and board member CTO - executive and board member Non-Executive Director (NED) x 2?

Approves strategy of bank’s management team

Appoints CEO, CRO, CFO, CTO etcApproves financial statements, compensation

etc

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Typical Management OfficeStructure varies a lot!

CEO – heads up and runs the bank CFO – heads up finance function CRO – heads up risk function CTO – heads up IT function COO – heads up operations function Head of Markets Heads of Retail/Wholesale banking

Develops bank strategy, and following Board approval executes this strategy

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Financial ControlManagement reportingFinancial accounts (quarterly / semi / annual)Regulatory reportingTax and transfer pricingDaily P&LAudit (often standalone department)

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Risk ManagementCredit riskMarket riskLiquidity riskCountry riskOperation riskReputational riskSpecial Asset Management

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Legal and ComplianceGroup legalFront Office legalCompliance

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OperationsCash settlementsSecurities settlements“Middle Office”

Financial Markets Corporate loan management

Property managementGeneral logistics

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Human ResourcesBank staff are commercial banking’s most

valuable assetHiring, firing, training, team buildingSome commercial banks have aggressive

firing policiesCompensation policy critical for “good

banking”

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Information TechnologyFront Office, Middle Office, Back Office

computer systemsCommercial banks traditionally have used

technology to support operations rather than a competitive weapon

Many banks in 2015 stuck with legacy, outdated systems – big problem!

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Financial MarketsSalespersonTraderStructurerQuant (so-called “rocket scientists”)Treasury management

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Wholesale BankingCorporate BankingProject FinanceTrade FinanceLeasingRelationship managementCash management

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Retail BankingDeposit productsMortgage department“Cards”Consumer loansBranches and infrastructure

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Capital MarketsInvestment banking businessOriginationsExecutionSyndicateLogistics

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M&AAdvisory business within investment bankingOriginationsExecutionResearch

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ResearchInvestment banking businessSecurities / new issue researchStock markets coverageRelative value researchEconomic research