The University of Hong Kong

Faculty of Business and Economics

MACC 7023 Fundamentals of Banking

Institutions

I. COURSE INFORMATION

Course Name: Fundamentals of Banking Institutions

Course Code: MACC7023

Instructor: Prof. Jing Li

Office: KK1212
Phone: 39171004
Email: [email protected]
Consultation Time:

Textbook: Stephen Ryan, Financial Instruments and Institutions: Accounting and Disclosure
Rules, Second Edition, Hoboken, NJ: John Wiley and Sons, 2007, ISBN: 978-0-470-04037-9.

Recommended Supplementary Textbook:

Saunders, Anthony, and Marcia Cornett: Financial Institutions Management: A Risk

Management Approach, New York, NY: McGraw-Hill Irwin, 2010, ISBN: 978-0073530758.

Hull, John C. Risk Management and Financial Institutions, Upper Saddle River, NJ: Pearson
Prentice Hall, 2007, ISBN: 0-13-239790-0.

II. COURSE DESCRIPTION

This course focuses on (1) financial reporting and disclosure rules for financial institutions and
financial instruments they hold (interest rate risk disclosures, loan loss disclosures, fair value
accounting for financial instruments, securitization accounting, derivatives and hedge
accounting, and market risk disclosures); and (2) the financial statement analysis of banks and
bank-like financial institutions (thrifts, mortgage banks, and commercial banks). Analyzing these
two aspects of a modern bank reveals much about the strategies followed by the bank given the
various regulations under which it operates.

The financial statements of financial institutions are increasingly based on fair value accounting
and their financial reports include increasingly extensive risk and estimation sensitivity
disclosures. Both fair value accounting and risk and estimation sensitivity disclosures are
necessary ingredients for financial reports to convey financial institutions’ risk and performance
in today’s world of complex, structured, value and risk-partitioning financial instruments and
transactions. While financial institutions often report imperfect (or worse) fair value
measurements and risk and estimation sensitivity disclosures, careful joint analysis of the
information they do provide invariably yields important clues about their risks and performance.

While this course is most relevant to students interested in financial institutions, much of the
accounting material also pertains to varying extent to other types of firms. For example, many
firms securitize their accounts receivable or hedge their commodity, interest rate, or foreign
exchange risk using derivatives.

III. COURSE OBJECTIVES

The main goal of this course is to provide students with an in-depth understanding of how
financial reports provide unusually specific and detailed (but not perfect) information about
certain risks and performance of these financial institutions.

IV. ASSESSMENT TASKS/ACTIVITIES (ATs)

Class Participation 10%

Individual Homework Assignments 40%
Group-based Case Assignments 50%
Total 100%

Class Participation (10%)

• Students are expected to attend and participate actively in lectures and tutorials. Each
student will be evaluated on the quantity and quality of their participation by the
instructor and tutor.
• You are expected to participate in and contribute to our class discussions. Also a good
citizenship in your teamwork is part of your class participation.

Homework Assignments (40%)

Individual Homework Assignments (IHA) are given and collected. The homework helps
individual understand lecture materials better and practice the methods and technologies learned
in class.

Group-based Case Assignment Submissions (50%) A major part of the course evaluation is a
group-based case studies on real-life companies. The case will cover four individual topics that
are covered in class. The case report is graded on rigor, creativity, demonstration of depth of
knowledge, and clarity in communication. More detail instructions about the group project and
each topic will be distributed in class shortly.
V. LEARNING OUTCOMES AND ASSESSMENT CRITERIA

1. INTENDED LEARNING OUTCOMES (ILOs)

On completion of this course, students will be able to:

ILO1. Construct the basic skills needed to interpret and reformulate financial statements for
the purpose of valuation, and perform financial statement analysis based on reformulated
statements;
ILO2. Comprehend knowledge on basic valuation principles; apply the accounting-based
equity valuation and other valuation technologies in valuing a company with publicly
available information;
ILO3. Prepare the pro-forma financial statements based on financial statement analysis, and
value a company with full-forecasted financial information as inputs.
ILO4. Understand the limitation and flexibility in the application of valuation models, use
professional judgment in dealing with complicated issues in evaluating a real-company.

Programme ILOs Course ILOs

1. Acquisition and internalization of knowledge of accounting, ILOs 1 & 2 & 3
business and economics
2. Application and integration of knowledge ILOs 1 & 2 & 3
3. Inculcating professionalism and leadership ILOs 4
4. Developing global outlook ILOs 3 &4
5. Mastering communication skills ILO 1 &3

3. TEACHING AND LEARNING ACTIVITIES (TLAs)

TLA1. Situation: Interactive lectures

⚫ Lectures: basic knowledge of financial accounting is discussed using PowerPoint slides.
⚫ In-class mini-cases: basic concepts and techniques are illustrated using mini-cases and
real company examples. In order to follow the lectures closely, students are encouraged
to work along with the instructor on these exercises.
⚫ In-class discussions: students are encouraged to raise questions, participate in discussions
and share ideas with their peers. These discussions help students formulate their own
opinions on controversial issues.
Major focus: ILOs 1, &2, &3.
TLA2. Situation: Group project, presentation and outside-classroom activities
⚫ Group discussions and presentation: Students are required to apply the knowledge
learned from this course to perform financial statement analysis of two real public
companies. Group members are to meet, work on the questions together and contribute
jointly to ensure that the project is completed for timely submission. Group members are
to present the project in class as well.
⚫ Instructor and tutor consultations: Consultation hours will be provided by the instructor
and tutor to address students’ questions related to the course.
Major focus: ILOs 1 &2 & 3.
4. GRADING CRITERIA

AT1. Homework Assignments (40%)

Major focus: ILOs 1, 2, 3.

A+ A A- B+ B B- C+ C C- D+ D F
Extremely well Partially prepared Not well Not well Poorly prepared
prepared for class for class prepared for prepared for for class
discussion, active discussion, quite class discussion, class discussion, discussion and no
in sharing views active in sharing limited active in no sharing of sharing of views
and attended at views and sharing views views and and experience
least 90% of attended at least and attended at attended at least and attended less
classes. 80% of classes. least 70% of 60% of classes. than 60% of
Submitted all Submitted at least classes. Submitted at least classes.
assignments with 80% of Submitted at least 60% of Submitted less
more than 90% assignments with 70% of assignments with than 60% of
accuracy. more than 80% assignments with more than 60% assignments with
accuracy. more than 70% accuracy. less than 60%
accuracy. accuracy.

AT2. Group-based Case Analysis and Presentations (50%)

Major focus: ILOs 1 & 3.
Grading Criteria
Grade Depth and breadth of Coverage, critical elements, structure, language and
conventions
A+, A, A- All aspects were addressed and researched in great depth.
Demonstrated a clear understanding of and the ability to apply the theory, concepts and
issues relating to the topic.
Clearly identified the most critical aspects of the task and adopted a critical perspective.
Developed excellent argument and offered a logically consistent and well-articulated
analysis and insight into the subject.
Drew widely from the academic literature and elsewhere whilst maintaining relevance.
All aspects conformed to a high academic / professional standard.

B+, B, B- Most aspects were addressed and researched in depth.

Demonstrated a good understanding and some application of the theory and issues
relating to the topic.
Identified critical aspects of the task and adopted a critical perspective.
Showed some evidence of analysis, supported by logical argument and insight into the
subject.
Drew on relevant academic and other material.
Most aspects conformed to a high academic / professional standard.

C+, C, C- Most aspects were addressed and researched adequately.

Demonstrated a good understanding of the theory, concepts and issues relating to the
topic but limited application relating to the topic.
Some presented argument showed some insight but not always consistent and logical.
Drew upon an adequate range of academic and other material.
Most aspects conformed to an acceptable academic / professional standard.
D+, D Basic aspects were addressed and researched adequately.
Demonstrated mainly description, showing basic understanding of the topic but no
application.
Showed little evidence of analysis but no clear and logical argument relating to the
subject.
Drew primarily upon course materials.
Limited aspects conformed to academic / professional standards.

F Basic aspects were superficial, inadequate or absent.

Fail
Demonstrated limited understanding of the topic and drew conclusions unrelated to the
topic.
The written work was not of an academic / professional standard.
VI. STUDY LOAD

Study load
Course Teaching and Learning Activities Expected Study Load
Contact Hour (% of study)

T&L1. Interactive Lectures 36 30%

T&L2. Group Project and Presentation 48 40%
T&L3. Assignments and Self-study 36 30%
Total 120 100%

VII. ACADEMIC CONDUCT

• Plagiarism and copying of copyright materials are serious offences and may lead to
disciplinary actions. You should read the chapters on “Plagiarism” and “Copyright” in
the Undergraduate/Postgraduate Handbook for details. You are strongly advised to
read the booklet entitled “What is Plagiarism?” which was distributed to you upon
your admission into the University, a copy of which can be found at
www.hku.hk/plagiarism. A booklet entitled “Plagiarism and How to Avoid it” is also
available from the Main Library.
• You are required to attend all the classes on time. In case you cannot attend a class you
should inform the instructor beforehand.