Early Warning Signals in Banks

Fitch Learning

Fitch Learning

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Who should attend

This course is designed for experienced regulators, credit risk and fixed income professionals with a good understanding of the analysis of financial institutions. This course follows on from our intermediary level courses: Intensive Bank Analysis, Emerging Market Bank Analysis and Non-Bank Financial Institutions.

About the course

This two day intensive workshop will provide a structured approach for identifying early warning signals in financial institutions.

Key Learning Outcomes:

  • Understand the causes and symptoms of both systemic and individual bank failure in the global financial crisis
  • Anticipate and quantify the vulnerability of institutions to liquidity and refinancing risk
  • Stress test solvency for write downs from credit, trading, investment and derivative positions
  • Differentiate qualitative, quantitative and market indicators of credit deterioration
  • Identify the likely triggers or events which would change the credit standing of a company in the future.

Analytic Overview

This section provides a structured framework of analysis highlighting early warning signals of distress and recurring themes in troubled credits.

Signs of distress

  • Common themes in troubled financial institutions: excessive growth, over-concentration, volatile earnings sources, asset and liability mismatches, dependence on unstable funding
  • Symptoms of a company's deteriorating credit standing: financial, non-financial and market indicators.

Structured analytic approach

  • Four step approach to focus on key issues: purpose, payback, risks and structure
  • Purpose of the exposure and sources of payback: importance of refinancing in financial institutions, challenges to downsizing assets and availability of external support
  • Risks to repayment: Identify the key macro, sector and company specific business and financial risks which might jeopardise repayment
  • Structure: conclude on appropriateness of the facilities, assess the level of protection and critique the pricing to assess the risk: return.

Operating Environment

Key macro economic and sector trends, which are likely to erode creditworthiness.

  • Systemic risks within a financial system: macro variables, competitive pressures, shadow banking system, quality of regulation and supervision
  • Support for the banking system: too big to fail or too big to rescue?
  • Origins of the credit crunch: sub-prime, structured finance (MBS, CDO, SIVs and ABCP), leveraged loans, dependence on interbank and etc.
  • Key market risks: including funding problems in the Eurozone and other countries, commercial real estate exposures in Europe and the US
  • Potential impacts of forthcoming regulatory changes: Basel III, Dodd-Frank.

Management and Shareholders

This section will focus on comparing management responses to a challenged sector.

  • Companies in crisis: recognising weak management and lack of integrity
  • Risk management challenges: liquidity, reputation, operational risk
  • Disclosure and corporate governance concerns
  • Inter-group support: ability of a stressed parent company to support subsidiaries.

Business Risk

This section will focus on companies with challenged business models and companies in crisis.

  • Credit risk: asset quality in the loan book; excessive growth and concentrations, hidden impaired loans; using surveillance reports to anticipate credit risk problems
  • Market risk: stress and back testing VaR indicators, acceptable levels of exposure to structural interest rate and FX risk
  • Derivatives: hidden credit and market risks; appropriate exposure levels
  • Performance risk: assessing earnings volatility.

Financial Risk

This section will focus on the stability of a company's funding structure and the ability to withstand solvency and liquidity crises.

  • Assessing the diversity and stability of funding sources: refinancing risk: quantifying liquidity and financial flexibility
  • Asset and liability management concerns: FX, interest rate and maturity mismatches
  • Liquidity risk management: managing and stress testing transaction and funding stability
  • Securitisation vehicles: liquidity exposure to conduits, servicing rights and other residual interests, sub-prime risks
  • Double leverage: challenges of a leveraged holding company
  • Solvency: stress testing quality and adequacy of capital to withstand write-downs.

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Early Warning Signals in Banks at Fitch Learning

From  GBP 2 295$2,995
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Disclaimer

Coursalytics is an independent platform to find, compare, and book executive courses. Coursalytics is not endorsed by, sponsored by, or otherwise affiliated with any business school or university.

Full disclaimer.

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