PEDAGOGICAL DESIGN FOR A CROSS-FUNCTIONAL COURSE IN THE ACCELERATED MBA PROGRAM

The sub-prime financial crisis exposed weaknesses in the financial risk management of several prominent firms. A deficient risk management is mainly attributed to the lack of integration of finance with other business disciplines. In this paper, we describe a tested implementation of a cross-functional project that improves students’ understanding of firm-value creation and risk management. While this approach can be implemented in any MBA program, we focus specifically on accelerated MBA programs with tight time constraints. Our methods are different from most other integrated courses in several ways. Our cross-functional project bridges the knowledge gaps of students in the area of finance, even if finance is not their primary area of specialization. Further, our approach creates a virtuous cycle for students, faculty, clients, local banks and institutions, university, and the local community

Market discipline of banks: Why are yield spreads on bank-issued subordinated notes and debentures not sensitive to bank risks?

The default risk sensitivity of yield spreads on bank-issued subordinated notes and debentures (SNDs) decreased after banks started issuing trust-preferred securities (TPS). The too-big-to-fail (TBTF) discount on yield spreads is absent prior to the LTCM bailout, but the size discount doubles after the LTCM bailout. Prior to TPS issuance and the LTCM bailout, SND yield spreads are sensitive to conventional firm-specific default risk measures, but not after the bailout. We find paradigm shift in determinants of yield spreads after the LTCM bailout. Yield spreads on TPS are sensitive to default risks and can provide an additional source of market discipline.Subordinated debt Trust-preferred securities Yield spread Too-big-to-fail Default risk