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Presentation by Frankfurter School of Finance & Management GmbH (max 30 min) related to your suggested topic for Day 3 “Banking Supervision” and to detail in particular:
• your proposed learning activities related hereto including your proposed pedagogical methods and models, theories and exercises as well as
• to provide the ECB, through a concrete example, the planned granularity/level of details of your proposed training session related to this topic.

Training lay out – workshop approach (Participants should be connected to internet for all trainings).

  1. This part of the program should be introduced with the film “INSIDE JOB” which shows why there is an increased need for regulation. It speaks more than a thousand words.
  2. Debriefing should cover the following questions
    1. Why more supervision?
      1. A bank could always be seen as a portfolio of assets financed by a portfolio of liabilities. Assets generate in income, liabilities a cost. The structure of the liabilities has a major impact on profitability; hence the tendency for banks to minimize the proportion
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        of funding by equity as it is the most expensive way to finance their assets. The result thereof is the leverage issue that took, before the collapse of Lehman Brothers, far from prudent proportions (1 to 30) for investment banks.

      2. The internationalization of banking operations and their sheer seize versus their home base economies have shown that the collapse of a major bank in a given country (example Iceland) has catastrophic consequences.
      3. The deregulation has encouraged undue risk taking. After the big depression bank activities were compartmented as stipulated in the USA with the Glass-Steagall act. The Dodd-Frank act addressed only to certain extends the consequences of deregulation. Europe has followed the same pattern.
      4. The Basel Committee on Banking supervision has increasingly put the accent not only on proper regulation but also on “good practices” and “codes of conduct” along the many recommendations, more particularly related to capital structure known as Basel I, subsequently II and III.
      5. The main danger zone is related to capital adequacy and liquidity
    2. Why Euro wide supervision?
      1. The introduction of the Euro entails a common monetary policy.
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        Participants will have seen what it means in the other parts of the program. Common rules are essential for a single currency. The recognized weakness and danger zone is the absence of a common fiscal policy.

      2. The sub-prime crisis has shown how exposed certain major financial institutions can be
      3. Profit remains the key motivating factor of executives
      4. All EU countries had national supervision, apparently not sufficiently diligent (example RBS)
    3. Stress test
      1. The review of what the premises are of a stress test and likely consequences
      2. The impact of economic cycles, interest rate fluctuations on the balance sheet of a bank
    4. Basel III (Source BIS) Basel III” is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to:

      The reforms target:

      • Bank-level, or micro prudential, regulation, which will help raise the resilience of individual banking institutions to periods of stress.
      • macro prudential, system wide risks that can build up across the banking sector as well as the pro-cyclical amplification of these risks over time.

      These two approaches to supervision are complementary as greater resilience at the individual bank level reduces the risk of system wide shocks.

    5. The Basel Committee on Banking Supervision (BCBS) – (Source BIS)
      1. Standards implementation
      2. Policy development
      3. Accounting standards
    6. Case study – The balance sheet of, for instance, RBS as of 2008 till 2013.