Managing Retail Franchises in Highly Competitive Environments and Measuring/ Managing the Associated Risks

Branch vs. Branchless Banking – getting value for investments in francises

• Measuring franchise value in fragmented retail markets
• Managing risks through the business cycle
  • Investment at Risk
  • Customer Volatility
  • Product Coverage and Margin Volatility
  • Cash Flow at Risk

Overview of Retail Banking Business Models and inherent Risks for Banks

• Customer Servicing Business Models – lessons from the past
• Franchise Resiliency and Customer Price Elasticities
• Modeling Behavioral Volatilities (Quantities, Unit Prices, Margins)
• The Paradigm of achieving homogeneity through large, mixed franchises
• Case Study on Size Optimality

The Liability Side

• Term Deposits and Saving Accounts
• The Fable of “Cheap Funding” via retail deposits
• Non Maturing Liabilities – Risks
  • Customer Replication Dynamics
  • Margin volatility – no competition
  • Margin volatility – with competition

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The Asset Side

• Credit Cards
• Consumer Loans
  • Non Collateralized
  • Collateralized
• Mortgages
  • Single Dwelling Units
  • Multiple Dwelling Units
• Customer Tailored Mortgage Products – Risk Identification
• Non Maturing Assets – Portfolio Replication Techniques
  • Margin stability vs. optimizing Profits
  • Modeling Volume Variation
  • Liquidity Constraints
• Risks of the Originate to Distribute Model
  • Lessons from the Credit Crunch

Transfer Pricing Issues

• Risks associated with the Market Rate Models
• Risks associated with the Time Lag Models
• Case Studies on Transfer Pricing Risks

Risks inherent in using Customer Rating Models

• Model risk
• Customer Dynamics under Economic Uncertainty
• Risks associated with de-coupling the asset and liability sides when employing scoring models

Credit Risk Management in Retail Banking

• Measuring the Effects of Diversification
• The leptokurtotic effects of defaults in volatile business cycles
• Concentration Risks
• Risk Mitigation and “the Risks of Risk Mitigation”
  • Securitization of Assets
  • Replicating Portfolios and Hedging

Risks associated with “Advisory Businesses”

• Legal & Operational Risks of Retail Securities Brokerage
• Impacts on Financing Businesses

Managing Customer Margin Volatility

• Measuring the Benefits of Diversification
• Managing Optimal Customer Products/ Services Pallet

Best Practices in various geographies

Managing Risks in Wealth Management Businesses

Key Success Factors in Managing Profitable Private Banking Businesses

• Performance of Managed Customer Accounts & Impact of Performance Volatility
• Case Study of Performance Enhancing Techniques in Competitive Environments
• Changes in Customer Elasticities to Performance Track Records
  • A Historical Perspective
  • Objective vs. “Emotional” Customer Behavior

Measuring and Managing “Fee Income at Risk” in Private Banking

• Determining Key Factors Impacting Fee Income
• Modeling Fee Income in Private Banking
• Aligning Fee Income volatility to Key Factors
  • Exogenous
  • Endogenous / Idiosyncratic

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Risks of Collateralized Lending to High Net Worth Individuals

• Haircuts Management in competitive Lending Environments
• Measuring & Managing Collateral Volatility
  • Liquidity concerns
  • Reposession concerns
• Measuring Dependencies of Fee Businesses and Collateral Lending
  • Testing Assumptions on Elasticities to macroeconomic factors
  • Dependencies between Default Probabilities and Collateral Market Values
  • Case Study on establishing Haircuts
• Constraints imposed by Market Practices
  • Periodical Margining
  • Marking collateral to Market
  • Securitizing / Syndicating Collateralized Loans: „Right Way Trades“, “Wrong Way Trades”
• Costs associated with collateral Liquidation - Case Studies
  • Aircraft / Yacht
  • Securities Portfolio
• Legal Constraints

Measuring Profitability and Effectiveness of Private Banking Practices

• Attaching a Value to Franchises – Case Study: Swiss Bank
• Determining appopriate Benchmarks under opaque Information
• Determining Measurement Factors:
  • Short Term vs. Long Term
  • Size of Portfolio under Management
  • Pallet of Bundled Services– Added Value - Case Study of “Platinum Credit Card”, Case Study of “Free Current Account”
• Industry Best Practices