BK2 - Topics in Commercial Bank Management Lecture TWO...

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MANA130107 Bank Management 1 Lecture TWO Financial Statement and Bank Performance (chap 5-6 ) Topics in Commercial Bank Management MANA130107 Bank Management 2 Financial Statement & Bank Performance ± Topics covered in this lecture ² Bank Efficiency ² Balance Sheet ² Income Statement ² Evaluating Bank Performance MANA130107 Bank Management 3 Organization Forms of Banks ± Unit Banks ± Branch Banking ± Electronic Branching: Electronic Branches and Virtual Banks ± Bank Holding Companies and Interstate Banking ± Universal Banking - 1999: landmark Gramm-Leach-Bliley (GLB) Act - Banks merge with insurance and security firms and offer nonbank financial services - Two alternative forms of bank organizations ² Financial Holding Companies ² Bank Subsidiaries
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MANA130107 Bank Management 4 ± Financial Holding Companies (FHC) ² A special type of holding company offers the broadest range of services ² Service offered may expand as regulators decide what services are Compatible with banking ² Each affiliated financial firm has its own capital, management, and profit/loss. ² Bank affiliations are protected from companywide loss Universal Banking ± Bank Subsidiaries ² Bank controls one or more subsidiaries, which may offer nonbank services (such as insurance and security brokerage) ² Profits and losses of subsidiaries impact parent bank and increase bank s risk exposure MANA130107 Bank Management 5 Bank Efficiency ± Banks are expanding in size and scopes ± Do big banks have cost advantage over small ones? Are big banks cost efficient? ± Two sources of cost saving ± Economies of Scale ² Output doubles with less than doubling of production costs ² Producing multiple units with same package costs ± Economies of Scope ² Save operating costs when expanding the mix of products ² Resources are used more efficiently in jointly producing multiple services ± There is moderate evidence supporting economies of scale. ± However, empirical studies on economies of scope is limited MANA130107 Bank Management 6 Operating cost, Efficiency & performance ± Confusing relationship between cost and efficiency lies in the motivation disparity ± Expense Preference Behavior ² Managers value excess expenses for personal welfare rather than maximize return for shareholders ² Excess size and higher expanding rate: for greater power ± The big picture: Principal-Agency Problem ² Relationships Among Managers, the Board of Directors, the Stockholders and Other Stakeholders of a Corporation ² Corporate Governance: A mechanism compels management to act to maximize the return to shareholders
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MANA130107 Bank Management 7 Bank Financial Statements ± Why do we need to concern about them? ² Reflect a bank’s services offers and overall size of each financial-service organization ² Road map of a bank’s past, present and ,maybe, future ² Proper interpretation of bank financial statements signal a bank’s performance ² Managers, customers, investors and regulators rely on two main statements:
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This note was uploaded on 10/17/2011 for the course FINANCE CFA 201 taught by Professor Leo during the Spring '09 term at Fudan University.

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BK2 - Topics in Commercial Bank Management Lecture TWO...

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