商银3-evaluating financial institution

这是一篇关于商银3-evaluating financial institution的思维导图，主要内容有why need to manage risk?、measurement for overall risk、various types of risk等。

3-evaluating financial institutions' performance & risk

• fundamental risk of FI
  • why need to manage risk?
    • 绩效核心： effective management is central to performance
    • 主要业务： the main business of FI is to manage these risk
  • measurement for overall risk
    • standard deviation(σ)/variance of stock price
    • standard deviation(σ)/variance of net income
    • standard deviation(σ)/variance of ROE/ROA
    • higherσis,greater the overall risk
  • various types of risk
    • interest rate risk
      • 概念： mismatch the maturity of asset&liability (asset-transformation function) 金融资产期限的错配导致的 (通常资产和负债一个是短期，一个是长期 而短期的那个利率是浮动的，长期的是固定的，由此产生的风险)
      • sort
        • reinvestment risk
          • return on funds will fall below cost of fund 需要重新投资，说明资产端少了
            • 
            • exposed to decreasing interest rate 利率下降，风险增大
        • refinancing risk
          • cost of rolling over (reborrowing)funds rise above returns generated on investment 需要重新融资，也就是借的钱不够了 (可以理解为后段借债利率不确定，由此产生的风险)
            • 
            • exposed to increasing interest rate 利率上升，风险增大
      • additional int-rate risk: market value/price risk
        • 根据贴现公式
          • i increase,PV of A&L decrease
          • i decrease,PV of A&L increase
      • when mismatch&price risk happens together 资产负债到期时长不同，受影响程度也不同 ——期限长的那个，受利率上升下降的影响更大
    • liquidity risk
      • 基本信息： the risk of being forced to borrow/sell assets in a very short time (low price results短时卖价会很低) seriously,may cause "run off",solvency problem
      • risk measure
        • cash&due from bank/total asset 现金越多，流动性越强
        • cash&government security/total asset 政府债券(包括国债)越多，流动性越强
        • purchased funds/total asset 借入资金对利率敏感，所以它越多，风险越大
    • credit risk
      • 基本信息： the risk that promised cash flows on loan&security will be not paid in full
      • measure
        • nonperforming loan/total loan(or equity capital)
        • net charge-off/total loan
          • net charge-off=gross charge-off-loan recovery
        • PLL(or ALL)/total loan(or equity capital)
    • other risk
      • market risk
        • incur in the trading of asset&liability due to changes in interest rate,exchange rate,and other asset prices 在交易过程中产生的新风险 eg.a single individual(Nick Lesson) caused losses that forced the bank into solvency
      • off-balance sheet risk
        • it incurs if FI enter into contigent liability or asset contract(或有合同) off-balance-sheet activities grow strikingly letter of credit loan commitment derivative security
      • foreign exchange(FX) risk
        • the risk may adversely affect the value of an FI's A&L
      • country/sovereign(主权) risk
        • risk that foreign borrowers may be unable to repay due to interference from foreign government often lack usual recourse(追索权) via court system
      • operating risk
        • result from inadequate or failed internal process,people and system,or from external events includes technology risk/employee fraud and errors(欺诈)
      • legal & compliance(顺从) risk
      • capital & insolvency risk(资本风险)
        • the value of the assets will decline below the value of liability
      • reputation risk
      • strategic risk(兼并，投资失误)
      • 有些将这两个归到营业风险中
• evaluate performance
  • why——unique in CB
    • perform special services
    • hold types of A&L
    • receive regulatory attention
  • evaluate channel
    • value of shares(股票价格)
      • E(Dt):the expected stream of future dividends 1/(1+r)^t:discount factor
        • if earnings growth is constant D1:the expected dividend in period 1 (所以是现有的D*（1+增长率）)
      • in theory,it's the best indicator cuz it reflect market evaluation of that firm,
    • profitability ratio: surrogate(替代品) for stock value
      • return on equity(ROE): net income/total equity 净资产收益率，相当于投资买下公司后，每年能获得的回报 注意，它是税后！（after-taxed）
      • return on asset(ROA): net income/total asset 资产回报率，是一种管理效率测量 measure how capable management has been in converting asset into net earning
      • ROE=ROA*权益乘数
      • net interest margin(NIM): net interest income/total asset(or total earning assets) 净利差,net return on the asset
        • earning asset=investment security+net loan&lease net interest income=interest income-interest expense
      • overhead efficiency: non-interest income/non-interest expense 间接费用效率（间接费用包括工资、福利、办公、折旧费） it's the ability to generate nonin-income to cover nonin expense 虽然越大越好，但基本上都小于1（因为银行基本非利息费用都是小于收益的）
      • earnings spread: (interest income/earning asset)-(interest expense/interest-bearing liability) 收益差价
      • earning base(EB): earnings asset/total asset evaluate the proportionate invesstment
      • earnings per share of stock(EPS): net income/common equity shares outstanding
      • net operating margin: pretax net operating revenue/total asset
        • pretax net operating revenue=net int&nonint income-PLL
  • return on equity(ROE) framework it's a financial statement analysis
    • ROE=ROA*EM it shows the return to shareholder is highly sensitive to how its asset are financed
      • ROA: ROA=PM*AU
        • AU: asset utilization=total operating income/total asset 资产利用率，reflect portfolio management policy
        • PM: profit margin=net income/total operating income total operating income=interest income + noninterest income 利润率，measure the ability to pay/control expense (generate net income from operating income)
        • high value of PM&AU may indicate problem
          • "labor quality": drop in salary&benefit may cuz the most skilled employees leaving the bank replace low-risk&low-return loan with high-risk&high-return loan can increase its interest income ratio,but a higher default probability
      • EM: equity multiplier(EM)=total asset/total equity 企业对权益乘数负债经营利用得越充分;反之，该比率越小 债权人权益的保障程度越高，企业的偿债能力也就越强
  • CAMELS rating
    • 基本信息：it's regulator's evaluation of the overall safety&soundness of depository institution given financial statement data
    • composition
      • C:capital adequacy
      • A:asset quality
      • M:management quality
      • E:earnings record
      • L:liquidity position
      • S:sensitivity to market risk exposure
    • rating
      • 1:basically sound(稳健)
      • 2：fundamentally sound
      • 3:exhibit financial/operating/compliance weakness
      • 4:have immoderate(不适当的)volume of serious financial weakness
      • 5:have extremely high probability of failure
• ratio analysis 评判一个指标的好坏，需要使用横截面分析
  • time series cross-sectional 运用：compare on firm with another 辅助工具： uniform bank performance report(UBPR)
• risk means the perceived uncertainty associated with a particular event