FNAN 321 Master Syllabus

FNAN 321: Financial Institutions Master Syllabus

Course Instructor:
Office Number:
Office Hours:
Email:
Course Meeting Times:
Course Materials:

Required:
- Saunders, Anthony, and Marcia Milton Cornet, Financial Institutions Management: A Risk Management Approach, 10th ed., New York, McGraw-Hill Education, 2020.
- Other reading articles as assigned by the professor from time to time
Highly Recommended:
- A subscription to the Wall Street Journal is also encouraged.You now have free access to Wall Street Journal through Mason Libraries.- Please refer to this comprehensive how-to guide for further details.
Students are encouraged to read/check out other financial publications/web sites regularly to keep up with the latest financial market news in general, and the banking/financial services industry news in particular. A few such sources are Bloomberg, The Economist, American Banker, CNBC, Yahoo! Finance.

Course Website: Canvas

At this site, you can access course materials (e.g., lecture slides) and course assignments.

Course Description

This course is an introduction to financial institutions, the key roles they play in the greater economy, and the main risks they face. We will begin with an overview of financial institutions – how major types of institutions are structured, how these structures relate to their functions and some industry trends. Next, we focus on managing different types of risks: interest-rate risk, credit risk, off-balance sheet risk, and liquidity risk; emphasizing basic ideas, tools, and business applications. We will also discuss the evolution of the financial services industry, causes and consequences of the 2008 credit crisis, and the response of regulators. The course is essential to anyone planning a career in financial services or in an area such as consulting or corporate treasury that works closely with financial institutions.

Course Objectives

The purpose of this course is to acquaint students with the following subjects:

The organization structures of major financial institutions and the key role of these financial institutions play in the economy
The major risks facing financial institutions, such as interest rate risk, credit risk, liquidity risk, foreign exchange risk, and market risk
The basic concepts of risk management and the tools used to manage those risks

Student Responsibilities and Classwork Submission Policy

I expect you to come prepared for each class, specifically in terms of the pre-class reading. Prepared means that you have completed the required reading, have taken the pre-class reading quizzes prior to coming class, and are ready to participate in the classroom experience and contribute to it with your questions and answers.

It is your responsibility to be on top of the syllabus, schedule, assignment due dates etc., and to submit your work in a timely manner. Do NOT wait until the deadline to submit your work on the last minute – technical issues may push you beyond the deadline and such last minute issues will NOT be counted as a legitimate extenuating circumstance to request for any extensions of the deadline. Late submissions will generally NOT be entertained as the solutions will be promptly released.

The structure of the grading components already takes into account that sometimes things could be beyond your control and unexpected issues could sometimes render you unable to submit your assignments before or on time. That is why, you have multiple attempts on the pre-class quizzes, and the lowest scoring Unit Test is dropped from your final grade (best two out of the three).

Also, if you are absent from a class, it is your responsibility to consult the syllabus and your classmates to come up to speed with your preparations for the next class – please do NOT send the professor an email asking what you have missed.

Grading Structure

Graded Item	Weight
Pre-class Quizzes (26 @ 1%)	26%
Unit-tests – Best 2 out of 3 (2 @ 12% each)	24%
Term Paper	10%
Final Exam	35%
Attendance & Class Participation	2%
Hedge Trading Game	3%

Grading Details

Pre-class Reading Quizzes (26; Not Timed; Open Book; Best of 3 attempts): 26%
You are expected to review and prepare for the assigned topics before attending each class. The class discussion will constitute an overall synthesis of the designated topics with emphasis on clarification and reinforcement of the concepts and mastery of the subject of the topic(s).

To incentivize forming/practicing the habit of “learning to learn”, and “drill” into the minds the subject matter, I use the Pre-class Reading Quizzes as your primary empowerment tool. These drills are composed of questions carefully culled, organized, and presented in an order to facilitate the initial grasping of the new concepts/topics as well as retaining them through repetition.

Since these are intended to guide you towards “learning” and not “testing”, these quizzes are open-book, with unlimited time, and multiple (three) attempts are allowed. Only the highest score of your three attempts will count towards your final grade. These “drills” are designed and intended to help you learn and to master the subject matter – and, NOT to test your prior knowledge or to punish you for not knowing things already.

The required reading from the textbook chapters, as posted in the syllabus for the respective classes, should be the primary preparatory material for these quizzes. You are encouraged to take a test, print out the results (to conserve paper consumption, you may print to a pdf file), refer to them while taking the next attempt. Or, use any and every method you can think of to maximize your score on these quizzes, working at your choice of time and space, under no time pressure, and no pressure to memorize stuff.

We will have a total of 26 pre-class reading quizzes – one per each of the 26 chapters we have on the syllabus. These are open-book, non-open-ended-answer question tests with no time limit. Once they are opened (usually four days to a week in advance of the due date), you can take them at any time, any place, with any assistance you can avail yourself of.

You will have three attempts to try for your best score (or, you can leave it after the first attempt if you are satisfied with your score and/or not aiming for more).

Unit Tests (best 2 test scores out of a total of 3 tests, at 12% each): 24%
To drive reinforcement and to encourage internalizing the concepts and the subject matter, I use the Unit Tests to test your retention of the topics already discussed and taught in the class, on specified group of chapters, as specified in the syllabus/schedule. If you prepared well for your pre-class reading quizzes, and paid attention in the classes, you should be ready to take these tests with minimal stress, with a sense of ease and comfort, and score very well on them. These are closed-book quizzes consisting of non-open-ended question types (multiple-choice, true/false, etc).

Unless otherwise announced, these tests will be in-class tests, given at the beginning of the class. These tests will be administered online, on Canvas, and may require the Respondus Lockdown browser to protect the academic integrity.

Term Paper: 10%
Working as part of a group of four persons, choose from one of the financial services institution types covered in the course and write a report on the evolution of that specific institution category from their origins to the contemporary state, discuss the major milestones along the way, major issues and challenges faced and how they were addressed, any historical lessons, current trends, current hot topics and/or issues/challenges/threats, and your hypotheses and forecasts about the institutions’ future prospects, trends, issues/problems and potential solutions/best practices etc. This is just a generic, minimal content which your paper should encompass – you can add more angles, perspectives to it as you see fit. I may, optionally, provide you a list of topics to choose from within the first four/five weeks of the term.

As an alternative, you can select any one of the following sample topics below.

Sample Topics - Interesting and Provocative Topics in Financial Institutions (choose any of these or propose one of your own according to your personal interests):

Federal Deposit Insurance Corporation -purposes, effects, and prospects
The international debt crisis-causes, consequences, and remedies
The U.S. agricultural financial crisis-causes, consequences, and remedies
Prudential regulation-its future in a deregulated environment and relationship to federal deposit insurance
The S&L crisis-causes, consequences, and remedies
Interstate banking: Issues of competition and expansion of customer base
Electronic payment systems-their impact on the scope of depository institutions markets
Proposed deregulation and its past and future impact on financial institution behavior and performance (choose a financial institution)
Free Banking-historical perspective and policy issues in the context of the current debate on banking deregulation. What is "free banking?"
Issues related to expanded powers for depository institutions-e.g., securities and insurance underwriting, equity investments, brokerage services, commercial activities
"Too-Big-To-Fail" doctrine-purposes and consequences
Securities Underwriting: Competition and pricing of underwriting services. What factors determine their fees and the extent of competition? Perhaps you may want to pick a security type - municipal bond, corporate bonds and stock, junk bonds, utilities, etc. Effects of entry by large banks if the Glass-Steagall prohibitions are lifted
Financial Market Crises: Their causes, consequences and remedies
Alternative Mortgage Instruments, the primary and secondary mortgage markets, and the S&L industry
Internationalization of Financial Markets and Exchanges: Analyze the development of these markets in Tokyo, London, Hong Kong, Singapore, etc. and how they are coordinated to provide competition for financial intermediaries in the U.S. Consider also European economic integration-EC '92 and adoption of the EURO in January 1999.
The U.S. Government Securities markets' organization and the implications of monopolistic practices for pricing and stability of these markets
FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act of 1989) and its effects on the future of S&Ls and the industry.
The RTC (Resolution Trust Corporation) and its effects on real estate markets and as a means of conducting the disposition of failed depository institutions' assets.
Securitization of depository institutions' assets. Requires little liability issue since assets are not held, but it requires the depository institution to provide a market for these instruments.
The "Credit Crunch." Define. Was there a "credit crunch" in the early 1990s or was there only a lack of borrowers of good credit quality that needed financing.
FDICIA (Federal Depository Insurance Corporation Improvement Act of 1991). Significant mandates to protect the FDIC Insurance Funds from being depleted (suggestion 6 above is related), established Prompt Corrective Action, capital standards for market, exchange rate, and interest rate risk, and risk-based deposit insurance premiums.
Reigle-Neal Interstate Branching and Banking Efficiency Act of 1994. Permits interstate branching for the first time throughout the U.S. unless specifically blocked by state law. Effective June 1997. The effect of this act may have been dissipated over the previous 14 years of interstate banking or it may be a strong impetus to banking consolidation, efficiency and competition.
Bank for International Settlements: Basle Accord and Revisions since 1989. Established the first international agreement on capital adequacy standards leading to the current proposals for a "models-based" identification for required capital for a banking and investment banking companies.
Asian Crisis Beginning in 1997. The collapse of the Thai baht in 1997 began the Asian Crisis that led to a collapse of several southeast a Asian economies (e.g., Indonesia) and crippled the South Korean economy.
Russian Default and Devaluation of August 1998. Led to a major flight to quality threatening the stability of global financial markets and the $3.6 billion bailout of Long Term Capital Management by major banks and investment banks in the U.S. and abroad that had interests in and loans to LTCM.
Gramm-Leach-Bliley Financial Modernization Act of 1999. Repealed the Glass-Steagall Act of 1933 and broadened the permissible activities of banks and other financial services firms.
Bank for International Settlements: Basle Capital Accord II Revisions to Start in 2007.
Dodd-Frank Wall Street Reform and Consumer Protection Act, July 2010

All ideas, hypotheses, conclusions not original with the authors must be accompanied by appropriate citations. Use the APA style for citations. Term paper reports are the product of the student and should be kept by them throughout the course. Copyright by the student is assumed. Be sure to retain a copy of the paper before it is submitted.

Term Paper Write-up Format:

Executive Summary of results and conclusions (less than 1 page).
A brief overview of the topic and a statement of the problem to be addressed.
A “literature review” section that cites various papers on the topic published in peer reviewed scholarly journals – use APA format for citations and references/bibliography.
Tools, techniques or analytical methods employed to address the central theme/problem of your paper.
A discussion of your analyses and the results
Summary and conclusions.

Term Paper Write-up Grading Rubric:

Must be double-spaced, 12-point size Times New Roman font, “Normal” (1 inch) margins.
About 8-10 pages in length, not including references, title page, figures, or tables.
Term papers will be graded on the following six (6) evaluative criteria:
1. Objectives/Problem Statement;
2. Accomplishment of (a);
3. Depth of treatment from scholarly sources (MUST use APA style for citing your references; MUST have at least ten or more references to scholarly journal articles published in Peer Reviewed Journals – search on Mason libraries for scholarly papers on your chosen topic);
4. Logic of organization, argument and presentation;
5. Readability, syntax, grammar, and spelling; and
6. Overall evaluation.

Term Paper Writing Standards:

All your submissions must be original and written by you personally. You may not copy from any other sources (except where you are directly quoting a source within double quotation marks; in such case, you must explicitly state the source). Every submission you make in this course is subject to plagiarism check through SafeAssign or other means. Any findings of plagiarism will be seriously dealt with in accordance with the policies set forth in this syllabus and/or the policies of the School of Business and/or the University.

All writing assignments should be formatted as follows: double-spaced, Times New Roman, 12point font, and 1-inch margins. Use APA style method to cite and reference professional or academic sources.

Here are a few APA style quick guides:

Here’s a VERY USEFUL Tutorial to help you get conversant with the APA style:

Introducing the Basics of Seventh Edition APA Style tutorial

To help manage the citations and seamlessly create reference lists, I recommend using one of the many free software tools available online – below are a few such tools you can use:

George Mason University has a Writing Center that can help you improve your English writing skills.

Final Exam: 30%
This will be a cumulative exam, testing all the chapters covered in the course. It will be a closedbook test consisting of non-open-ended question types (multiple-choice, true/false, etc).

Hedge Trading Game – Hedging the Risk Exposure of an Underlying Portfolio of a Single Asset Class using Corresponding Futures (Equities, Bonds, and Foreign Exchange) - on a Monthly cycle, three Cycles: 3%
This is intended to give you an exposure to making trading pitches in a team-setting, and then agreeing to the best pitch as a team, and executing the trade idea with a view to hedge the risk exposure of an underlying portfolio composed of a single asset class. Each of the three months (Feb, Mar, and Apr), we cover one of the three asset classes I wanted to give you exposure to: Equities, Bonds, and Foreign Exchange. We start the monthly cycle with your initial trade in the corresponding futures contract. You MUST submit AT LEAST ONE and NOT MORE THAN THREE trades per WEEK. Your account equity and margin requirements will be calculated on a mark-to-market basis. We track the performance of each team’s trade idea till the month end and the profit/loss is recorded.

I am exploring using one of the popular online brokerage firms’ trading platforms for this exercise. I will announce which platform or how we will execute these trades once I have the logistics taken care of.

To alleviate potential anxiety (or, obsession) on the performance, and to encourage the students to focus on the learning process, the grade awarded would be based on actively participating in the trade submission and profit/loss/margin tracking process and NOT on the results of the paper trade made (whether your trade makes profits or losses by month-end would NOT affect your grade – whether you submitted a trade in a timely manner, and whether you updated your profit/loss and margin requirements every day in a timely manner is what will determine your grade). Calculating your margin requirements daily on a mark-to-market basis affords you to experience the volatility of the markets in a first-hand manner. Tracking the profit/loss helps you experience the emotional aspects that are inherently involved in making trading decisions – for this reason, the performance of each team will be shared across the class teams. Hence, turning in good performance gives you bragging rights, thus helping you put some skin in the game and not mechanically fill in some trades just for the sake of doing it for the grade. Past experiences have shown, repeatedly, that students have a lot of fun with this while learning a lot at the same time.

Attendance and Class Participation (2%)
Learning can only happen when you are playing an active role. It is important to place more emphasis on developing your insights and skills, rather than transmitting information. Knowledge is more important than facts and definitions. It is a way of looking at the world, an ability to interpret and organize future information. An active learning approach will more likely result in long-term retention and better understanding because you make the content of what you are learning concrete and real in your mind.

Although an active role can look differently for various individuals, it is expected in this class that you will work to explore issues and ideas under the guidance of the professor and your peers. You can do this by reflecting on the content and activities of this course, asking questions, striving for answers, interpreting observations, and discussing issues with your peers.

Also, your attendance is mandatory to do well in this class. I will take attendance randomly and, each occurrence of your absence will be noted and will impact your grade under this category. I will determine the grade for your attendance and class participation based on my personal observations and subjective judgment.

Class Work Expectations

Late submissions will not be accepted. I may make exceptions if feasible, but only for extraordinary circumstances, e.g., birth of your child, military deployments, severe illness, death of an immediate family member. Requests for extensions should be made prior to the submission deadline. Please note that I won’t accept claims of conflicts from other course requirements or excessive workloads from your employer as justification for an extension. For situations where solutions are already posted online, no extensions can be granted.

In correspondence/communication students will be expected to:

Be professional and respectful in correspondence.
Make reasonable requests of the instructor. We will be happy to clarify course material and answer legitimate questions; however, please exhaust other information sources (e.g., syllabus, Canvas) for answering your question before contacting me.

Regarding honesty in work, students will be expected to:

Review the University integrity and honesty policies in the student handbook for guidelines regarding plagiarism and cheating (summarized below). I will gladly clarify my stance on any questionable or “grey area” issues you may have.
Refrain from dishonest work as it will receive a minimum penalty of zero on the assignment and a maximum penalty of a zero for the course with a report to the Honor committee. The George Mason University Honor Code requires that faculty submit any suspected Honor Code violations to the Honor Committee. Therefore, any suspected offense will be submitted for adjudication.

Mason Honor Code

The complete Honor Code is as follows:
To promote a stronger sense of mutual responsibility, respect, trust, and fairness among all members of the George Mason University community and with the desire for greater academic and personal achievement, we, the student members of the university community, have set forth this honor code:

Student members of the George Mason University community pledge not to cheat, plagiarize, steal, or lie in matters related to academic work.

Cheating Policy

Any form of cheating on an activity, project, or exam will result in zero points earned.

“Cheating” includes, but is not limited to, the following: reviewing others’ exam papers, having ANY resources utilized when not allowed, collaborating with another student during an individual assignment.

If you have questions about when the contributions of others to your work must be acknowledged and appropriate ways to cite those contributions, please talk with the professor or utilize the George Mason University writing center.

Plagiarism and the Internet

Copyright rules also apply to users of the Internet who cite from Internet sources. Information and graphics accessed electronically must also be cited, giving credit to the sources.

This material includes but is not limited to e-mail (don't cite or forward someone else's e-mail without permission), newsgroup material, information from Web sites, including graphics. Even if you give credit, you must get permission from the original source to put any graphic that you did not create on your web page. Shareware graphics are not free. Freeware clipart is available for you to freely use. If the material does not say "free," assume it is not.

Putting someone else's Internet material on your web page is stealing intellectual property. Making links to a site is, at this time, okay, but getting permission is strongly advised, since many Web sites have their own requirements for linking to their material. Review the Honor Code here.

Individuals with Disabilities

Students with documented disabilities should contact the Office of Disability Services (703) 993-2474 to learn more about accommodations that may be available to them. Academic Misconduct

Academic misconduct causes failing the course and triggers quite unpleasant university-mandated procedures which result in further sanctions. Faculty Rule 2.11.5 (Faculty Responsibility under the Honor Code) requires alleged misconduct to be reported to the department and the Honor Committee. So follow the George Mason University honor code at all times and don’t even think about cheating!

Academic Integrity and Inclusivity

This course embodies the perspective that we all have differing perspectives and ideas and we each deserve the opportunity to share our thoughts. Therefore, we will conduct our discussions with respect for those differences. That means, we each have the freedom to express our ideas, but we should also do so keeping in mind that our colleagues deserve to hear differing thoughts in a respectful manner, i.e. we may disagree without being disagreeable.

Student Privacy Policy

George Mason University strives to fully comply with FERPA by protecting the privacy of student records and judiciously evaluating requests for release of information from those records.

Please see George Mason University’s student privacy policy.

Email Policy

Mason uses electronic mail to provide official information to students. Examples include notices from the library, notices about academic standing, financial aid information, class materials, assignments, questions, and instructor feedback.

You are responsible for the content of university communication sent to your Mason e-mail account and are required to activate that account and check it regularly.

Class Schedule

Ver. 1 Subject to changes /revisions - always refer to the latest version posted on the Course Canvas site		Class Topics Meeting time: 4:30pm - 7:10pm Location: ENT 173	Required Reading (to be completed before coming to the class)	Pre-class Quiz (locked at 4:00pm) Open book, Unlimited time, Best of 3 attempts	Test (closed book, online w/ Respondus Lockdown Browser; single attempt; 1 hour duration)
2023-01-26	Thu	Syllabus, Schedule, Ch 1: Why Are Financial Institutions Special? Ch 2: Depository Institutions	Ch 1, Ch 2	Ch 1, Ch 2 Extended deadline: Sun, 11:59pm
2023-02-02	Thu	Ch 3: Finance Cos Ch 4: Securities firms and Investment Banks	Ch 3, Ch 4	Ch 3, Ch 4
2023-02-09	Thu	Ch 5: Mutual Funds and Hedge Fund Cos Ch 6: Insurance Cos	Ch 5, Ch 6	Ch 5, Ch 6
2023-02-16	Thu	Ch 8: Interest Rate Risk I (contd.) Appendix 8B: Term Structure of Interest Rates	Ch 8	Ch 8
2023-02-23	Thu	Unit Test 1: Ch 01-06 Ch 9: Interest Rate Risk II Appendix 9A: The Basics of Bond Valuation	Ch 9	Ch 9 (extended deadline, Sun 11:59pm)	Unit Test 1: Ch 01-06
2023-03-02	Thu		Ch 9	Ch 9 (extended deadline, Sun 11:59pm)	Unit Test 1: Ch 01-06
2023-03-09	Thu	Ch 10: Credit Risk - Individual Loan Risk Appendix 9B: Incorporating Convexity into the Duration Model	Ch 10	Ch 10
2023-03-16	Thu	No Class - Spring Break (03/13 - 03/19)
2023-03-23	Term Paper Topic Selection: Announce your topic choice (from the list given) on the thread - first come, first served. Topic list opens at 12:01am on Thursday (i.e, Wed night)
2023-03-23	Thu	Ch 11: Credit Risk - Loan Port. & Conc. Risk Ch 12: Liquidity Risk	Ch 11, 12	Ch 11, 12
2023-03-30	Thu	Ch 15: Market Risk Ch 16: Off-Balance-sheet Risk	Ch 15, 16	Ch 15, 16
2023-04-06	Thu	Ch 19: Liability and Liquidity Management Ch 21: Capital Adquacy	Ch 19, 21	Ch 19, 21	Term Paper - Initial Draft Due
2023-04-13	Thu	Unit Test 2: Ch 23: Futures and Forwards			Unit Test 2: Ch 9,10,11,12,15,16
2023-04-20	Thu	Ch 23: Futures and Forwards	Ch 23	Ch 23
2023-04-27	Thu	Term Paper Presentations Ch 23: Futures and Forwards			Term Paper - Final version Due; Presentations
2023-05-04	Thu	Unit Test 3: Ch 27: Securitization	Ch 27	Ch 27 - Extended deadline Sun, 11:59pm	Unit Test 3: Ch 19,21,23,27
2023-05-11	Final Exam (4:30pm - 7:15pm)

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