Banking and Financial Institutions Guy Hargreaves ACF-104

Recap of yesterday Review of maturity transformation, aggregation and risk transformation Review of credit creation multiplier Understand how commercial banking improves the efficiency of an economy Appreciate the role commercial banking has in driving economic growth Understand the role commercial banks play within financial markets

The general structure of commercial banks

Today’s goals Overview of structure of different types of commercial banking enterprises Understand the different departments and roles of those departments within a typical commercial bank Overview of units within a typical investment banking business

Typical commercial bank units Board of Directors Management Office Financial Control Risk Management Legal and Compliance Operations Human Resources Information Technology Financial Markets Wholesale Banking Retail Banking

Typical investment bank units Board of Directors Management Office Financial Control Risk Management Legal and Compliance Operations Human Resources Information Technology Financial and Capital Markets Mergers and Acquisitions Research

Bancassurance All 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

Typical Board of Directors Structure 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 etc Approves financial statements, compensation etc

Typical Management Office Structure 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

Financial Control Management reporting Financial accounts (quarterly / semi / annual) Regulatory reporting Tax and transfer pricing Daily P&L Audit (often standalone department)

Risk Management Credit risk Market risk Liquidity risk Country risk Operation risk Reputational risk Special Asset Management

Legal and Compliance Group legal Front Office legal Compliance

Operations Cash settlements Securities settlements “Middle Office” Financial Markets Corporate loan management Property management General logistics

Human Resources Bank staff are commercial banking’s most valuable asset Hiring, firing, training, team building Some commercial banks have aggressive firing policies Compensation policy critical for “good banking”

Information Technology Front Office, Middle Office, Back Office computer systems Commercial banks traditionally have used technology to support operations rather than a competitive weapon Many banks in 2015 stuck with legacy, outdated systems – big problem!

Financial Markets Salesperson Trader Structurer Quant (so-called “rocket scientists”) Treasury management

Wholesale Banking Corporate Banking Project Finance Trade Finance Leasing Relationship management Cash management

Retail Banking Deposit products Mortgage department “Cards” Consumer loans Branches and infrastructure

Capital Markets Investment banking business Originations Execution Syndicate Logistics

M&A Advisory business within investment banking Originations Execution Research

Research Investment banking business Securities / new issue research Stock markets coverage Relative value research Economic research