FMP 1. Banks

Learning Objectives

1) Identify the major risks faced by banks and explain ways in which these risks can arise.

2) Distinguish between economic capital and regulatory capital.

3) Summarize the Basel Committee regulations for regulatory capital and their motivations.

4) Explain how deposit insurance gives rise to a moral hazard problem.

5) Describe investment banking financing arrangements including private placement, public offering, best efforts, firm commitment, and Dutch auction approaches.

6) Describe the potential conflicts of interest among commercial banking, securities services, and investment banking divisions of a bank, and recommend solutions to these conflict of interest problems.

7) Describe the distinctions between the banking book and the trading book of a bank.

8) Explain the originate-to-distribute banking model and discuss its benefits and drawbacks.