Objectives

This two-day intensive workshop will provide a structured approach for identifying early warning signals in financial institutions. The aim is to equip participants with the knowledge and skills to proactively:

• 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.

Analytical Overview

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
• Case study: institution expanding aggressively without a strong deposit base. Lessons learned from the origins of the crisis.