SBANC
Newsletter
May
02, 2006
Issue 419-2006
|
QUOTE
"You
can't overestimate the need to plan and prepare. In most of
the mistakes I've made, there has been this common theme of
inadequate planning beforehand. You really can't over-prepare
in business!"
-- Chris
Corrigan
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FEATURE
PAPER
Capital
Standards and Risk Alignment
in the Banking Firm
The
following paper was presented at the 2006 Allied Academies Spring
Conference held in New Orleans, Louisiana. It was written
by Guy Ford, of Macquarie University and Maike Sundmacher of
University of Western Sydney.
Abstract
This paper
examines the question of how to efficiently align the investment
decisions of
managers in a bank with the risk/return goals of the centre of
the bank. It argues that the
contemporary approach aimed at achieving such alignment, which
involves the top-down allocation
of some proportion of the total bank’s capital against positions
taken by managers, and then
remunerating managers based on the return generated on this capital,
serves as a poor mechanism
for achieving alignment of incentives. This arises when bank capital
is measured in terms of a
predetermined solvency standard, which has at is core a risk-neutral
attitude to risk. If bank
stakeholders are risk-averse, and desire that this risk attitude
be captured in bank investment
decisions, then risk measures used internally for investment selection
and performance measurement
must diverge from those used to measure total bank capital.
Introduction
This
paper examines the troubling question of how to efficiently align
the investment
decisions of managers in a bank with the risk/return goals of the
centre of the bank. It argues that
the contemporary approach aimed at achieving such alignment, which
involves the top-down
allocation of some proportion of the total bank’s capital
against positions taken by managers, and
then remunerating managers based on the return generated on this
capital, serves as a poor
mechanism for achieving alignment of incentives. Indeed, it is
argued that this approach leads to
outcomes that are against the best interests of bank stakeholders
whom the centre is deemed to
represent.
This problem arises when bank capital is measured in terms of a
predetermined solvency
standard, which has at is core a risk-neutral attitude to risk.
If bank stakeholders are risk-averse, and
desire that this risk attitude be captured in bank investment decisions,
then risk measures used
internally for investment selection and performance measurement
must diverge from those used to
measure total bank capital.
Read
the Entire Paper... |
CONFERENCES
AACSB
|
| Who: |
The
Association to Advance Collegiate Schools of Business
|
| What: |
Faculty
Conference on Learning
|
| Where: |
St.
Pete Beach, Florida |
| When: |
June
7-9, 2006
|
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|
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CG
|
| Who: |
Common
Ground
|
| What: |
Symposium
on Technology, Knowledge and Society
|
| Where: |
McGill
University, Montreal, Canada |
| When: |
June
9-10, 2006 |
|
|
|
IPSI
|
| Who: |
Internet,
Processing, Systems, and Interdisciplinary (Research)
|
| What: |
IPSI
2006 - New York
|
| Where: |
New
York, New York, USA |
| When: |
July
3-6, 2006 |
|
|
|
ACI
|
| Who: |
Academic
Conferences International
|
| What: |
The
2nd European Conference on IS Managment, Leadership
and Governance
|
| Where: |
Paris,
France |
| When: |
July
12-13, 2006 |
|
|
|
Conference
Organising Committee
|
| Who: |
Conference
Organising Committee
|
| What: |
The
International Conference on the Arts in Society
|
| Where: |
The
University of Edinburg in Scotland |
| When: |
August
15-18, 2006 |
|
|
|
CALLS FOR PAPERS
IEF
|
| Who: |
International
Entrepreneurship Forum
|
| What: |
6th
International Conference
|
| Where: |
Riga,
Latvia |
| When: |
August
31-September 2, 2006 |
Submission
Deadline:
May 30, 2006
|
|
|
|
IABE
|
| Who: |
International
Academy of Business and Economics (IABE)
|
| What: |
IABE-2006
Annual Conference
|
| Where: |
Las
Vegas, Nevada, USA |
| When: |
October
15-18, 2006 |
Submission
Deadline:
May 31, 2006
|
|
|
|
ASC
|
| Who: |
American
Society for Competitiveness
|
| What: |
17th
Annual Conference
|
| Where: |
Washington,
D.C., USA |
| When: |
November
9-11, 2006 |
Submission
Deadline:
June 5, 2006
|
|
|
|
ASBE
|
| Who: |
Association
for Small Business and Entrpreneurship |
| What: |
Fall
Conference
|
| Where: |
Best
Western in Corpus Christi, Texas |
| When: |
Novermber
1-3, 2006 |
Submission
Deadline:
August 1, 2006
|
|
|
|
USASBE
|
| Who: |
United
States Association for Small Business and Entrepreneurship |
| What: |
2007
USASBE Conference
|
| Where: |
Disney's
Coronado Springs Resort in Orlando, Florida |
| When: |
January
11-14, 2007 |
Submission
Deadline:
August 15, 2006
|
|
|
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TIP
OF THE WEEK
Preparing a
Loan Proposal
All bankers want to hear how the loan they will provide will improve
the worth of the company. To improve the chance of coming away
with the loan, the entrepreneur should tailor the presentation
to address this question. A loan proposal consists of eight parts.
Using the information from the business plan, the entrepreneur
should shift the emphasis toward the new audience to convert it
into a loan proposal. Here are some guidelines to assist the entrepreneur
in preparing a loan proposal:
1. Summary. On the first page, the entrepreneur should give his
or her name and title, company name and address, nature of business,
amount sought, purpose, and source of repayment.
2. Management Team Profiles. A biography should be prepared on
the entrepreneur and the management team, with emphasis on business
background, education, experience skills, areas of expertise, and
accomplishments. Bankers seek their ultimate security in experienced
management.
3. Business Description. Details on the legal structure, number
of employees, union status, and current business assets should
be provided. The products and markets as well as customers and
competitors should also be defined, along with inventory in terms
of size, rate of turnover, and market ability. The status of your
accounts receivable and accounts payable should also be reported.
4. Projections. The entrepreneur should show projections on the
current share of the market and describe how he or she plans to
exploit these opportunities for the next three years. The alternative
and fallback plans, as well as a realistic timetable for achieving
the goals, also need to be listed. Bankers judge plans and goals
in terms of the industry's practices and trends.
5. Financial Statements. The entrepreneur should prepare a balance
sheet and income statement for the past three years (if available).
Bankers are more comfortable with audited statements. If the entrepreneur
cannot afford a full audit, he or she should ask the accountant
for a financial "review." Though less convincing than
an audit, this new intermediate procedure gives the banker more
assurance than an unaudited statement. Two sets of projected balance
sheets as well as income and cash flow statements should also be
prepared, one predicated on receiving the loan and the other on
proceeding without it. Though critical to proving the entrepreneur's
claim that the loan will increase company worth, the projections
must be realistic. Bankers match projections against published
industry standards, searching for padded earnings and meager cost
estimates. Personal financial statements, including tax returns
for the past three years, must also be submitted, since the entrepreneur's
own net worth is a factor. Bankers check the entrepreneur's personal
credit rating in addition to the company.
6. Purpose. The purpose of the loan should be stated. A request
for "working capital" will elicit questions, not money.
Instead, explain specifically what the intended use of the working
capital is-for example, to build up Christmas inventory by increasing
productions, starting in late summer.
7. Amount. The entrepreneur should ask for the premise amount
needed to achieve his or her purpose and support the figures with
estimates or previous cost figures. Bankers know costs, so the
entrepreneur should not ask for a high amount, expecting his or
her request to be negotiated. The banker will verify all requested
amounts.
8. Repayment Plans. The asset must match the loan. Any asset the
entrepreneur wants to finance must last at least as long as the
loan period. Also, the asset should generate the repayment funds
by increasing sales, slashing costs, or heightening efficiency.
Weaving these into a repayment schedule is a complex task, but
the entrepreneur will not be required to do it all alone. Lending
officers anticipate calls for advice on this and all other elements
of loan proposals. They look to the entrepreneur to be an expert
only on the business; however, he or she will be expected to come
in with all the requisite financial data.
| Jack
M. Kaplan and Anthony C. Warren. Patterns of Entrepreneurship Second
Edition. United States of America: John Wiley & Sons,
Inc., 2007. 141-142. |
ANNOUNCEMENTS
Syracuse University
presents The Experiential Classroom
The Experiential
Classroom VII will be held at Syracuse University from September
21-24, 2006. It is a content rich program that intorduces a number
of highly effective, state-of-the-art approaches to teaching
entrepreneurship.
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The
SBANC Newsletter is provided as a service to the members of our
affiliates: Academy of Collegiate Marketing Educators (ACME), Association
for Small Business & Entrepreneurship (ASBE), Federation of
Business Disciplines (FBD), International Council for Small Business
(ICSB), Institute for Supply Management (ISM), The International
Small Business Congress (ISBC), Marketing Management Association
(MMA), Small Business Administration (SBA), Service Corps of Retired
Executives (SCORE), Small Business Institute (SBI), Society for
Marketing Advances (SMA), United States Association for Small Business & Entrepreneurship
(USASBE), U.S. Department of Veterans Affairs (VA).. If you are
interested in membership or would like further information on one
of our affiliates, please see our web site at http://www.sbaer.uca.edu
SBANC STAFF
Main Office Phone: (501) 450-5300
Dr.
Don B. Bradley III, Executive Director of SBANC & Professor
of Marketing;
Direct Phone: (501) 450-5345
Brandon
Tabor, Development Intern
Tyler
Farrar, Development Intern
Garion
McCoy, Development Intern
To subscribe or unsubscribe to the
SBANC Newsletter, please E-mail SBANC at sbanc@uca.edu
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