Course leader: Nataliia Versal, Vasyl Erastov
Home Institution: Taras Shevchenko National University of Kyiv
Course Overview
The course's primary goal is to create the knowledge, understanding, and key skills to be proficient in risk management in banking and insurance institutions.
The ‘Risk Management in Banking and Insurance’ course's subject-matter is an overview of best practices in identifying, monitoring, and managing the different risks faced by the banks and insurance companies.
The course is to:
Learning Outcomes
By the end of the course students
should be able to:
will improve:
Course Content
Part 1. Risk Management in Banking
Day 1. Banking Risks
Uncertainty, risk, and exposure to risk. Types of risks. Investigation of the principal risks in banking, including credit risk, liquidity risk, interest rate risk, market risk, foreign exchange risk, and operational risk.
Day 2. Credit Risk: Standalone and Portfolio Risk Management
Policies for managing credit risk. Management policies to reduce credit risk. Analyzing credit risk: loan portfolio structure; loan portfolio review. History and growth of securitization. Leveraged structures and inappropriate asset classes. Review of securitized products. The players, their contributions and commitments. The rationale for securitization: benefits for the originator, principles of credit enhancement, basic structuring rules.
Day 3 - 4. ALM Overview: Liquidity Gap, Interest Rate Gap, Foreign Exchange Rate Gap
ALM building blocks: standalone risk; portfolio risk. The definition of liquidity gaps. Static and dynamic gaps. Liquidity gaps and liquidity risk. Liquidity gaps and maturity mismatch. Liquidity management: funding a deficit. The definition of interest rate gaps. Interest rate gap and variations of the interest margin. Interest gap calculations. Cumulative and marginal gaps. The interest margin variations and the gap time profile. Interest rate gaps and hedging. Financial dollarization, foreign exchange gap, foreign exchange gap modeling (basic approach).
Day 5. Market Risk Management (Stocks example)
Measuring market risk: standalone and portfolio risks. VaR, CVaR, volatility, beta coefficient.
Part 2. Risk Management in Insurance Industry
Day 1. Specific and common risks of Insurance Industry
Uncertainty as a part of insurance, risk taking and managing. Types of risks in insurance industry. Brief characteristics of underwriting risk, market risk, credit risk, liquidity risk, operational risk and why are they different from other industries.
Day 2. Introduction to Insurance Industry Risk Management
Underwriting and actuarial calculations as a part of Risk Management of Insurance Company. How to manage own and accepted risks? Operational and commercial risks. Main approaches to risk analysis of Insurance activities
Day 3 - 4. Liquidity, solvency and financial stability of insurers
Differences between liquidity, solvency and stability of Insurance company. Solvency II as a guidance to mitigate risks. How to calculate indicators of liquidity, solvency, financial stability. Capital requirements and necessity of adequate reserves. Early warning and modern approaches to monitor risks.
Day 5. Other Risks of Insurance company
Compliance and reputational risks. Digitalization risk or opportunity? Pandemic as an example of force major risk.
Instructional Method
Lectures&seminars, interactive teaching, discussions, case studies, supporting videos, collaborative teamwork, poster presentation.
Required Course Materials
Facilities: laptops, Internet connection, multimedia projector.
Required readings and useful links:
Assessment
Team Project (40%)
Get acquainted with the prominent trends expected in risk management in banks explained in McKinsey Working Papers on Risk ‘The future of bank risk management’ (you can find the link in course materials). Assess how strong these trends are for banks in your country. Present your results on a poster. The research paper can be prepared by a group of up to three students. The presentation of the poster is within 15 minutes, and its discussion lasts up to 20 minutes.
Essay (25%)
Written essay about the main consequences of Solvency II implementation on given (mostly domestic) or chosen (if it is not implemented on domestic) insurance market. The results should be provided by each student before the end of the course.
Quiz (15%)
Final Test (20%): tests, true/false statements, practical tasks.