(checksheet) This option prepares students for a variety careers related to commercial banking. Many of the career paths involve working within various areas of banking. However, this option can prepare students for other career paths related to banking, such as opportunities with government agencies that regulate and provide funding for the banking system, as well as careers in real estate, which is usually financed by banks.

Commercial Banking

Commercial Banking encompasses a variety of finance career paths that involve working for commercial banks. Commercial banks are financial institutions that take deposits from individuals and businesses and then earn money on those deposits by lending the money to individuals and businesses. Those loans can take many forms, including mortgages, business loans, car loans, and loans through credit cards. In addition to making loans, commercial banks offer numerous other services, including checking accounts, private banking (banking for wealthy people), credit cards, letters of credit, and cash management services for businesses. Commercial banks come in a variety of sizes, ranging from small local banks with only a handful of branches, up through regional banks such as BB&T and SunTrust, to international behemoths such as Bank of America. Within Commercial Banking, there are a wide variety of career opportunities for finance majors. Some of these roles are more analytical in nature. Some focus on sales and customer relationships. Others involve managing people, processes and business operations within a bank. Yet other jobs involve dealing with laws and regulators. You can also divide the jobs into ones that deal with individuals and those which deal with corporate clients and their businesses. Because of the wide variety of roles available within commercial banks, some banks have their new employees go through a rotational training program so that they gain a variety of experience, learn how the different jobs all fit together, and gain a better idea of which job is the best fit for them. The following is a list of some of the most common types of jobs for finance majors within commercial banks:

Loan Officer/Relationship Officer

Banks take in deposits and need to earn money on those deposits to more than cover the interest that they are paying to the depositors. They do it by making loans to businesses and individuals. Loan officers (often also called relationship officers) call on businesses that need to borrow money to finance a variety of business needs. A loan officer needs to have a mixture of finance skills and selling skills. They work with the customer to determine their needs and which type of loan fits those needs (mortgage, line of credit, etc.). They also help assess whether the business has the ability to make the required interest and principal payments on the loan. In other words, is the company a good credit risk? They do this in conjunction with Credit Officers, who specialize in risk assessment. The loan officer often does the initial assessment of whether or not a company should be given a loan, while the credit officer does much of the more detailed work that is required for the loan approval processes. Once a loan has been made, the loan officer remains the key point of contact with the company. They monitor the credit quality of the company, its progress in making loan payments, and whether it is living up to other conditions of the loan. They represent the bank in any negotiations that must be done with the client (especially if problems occur with the loan). They also work with the company to identify other potential moneymaking opportunities for the bank, such as additional loans, checking accounts, cash management services, letters of credit, etc. Relationship officers are often divided by size of customer. One group within the bank will usually handle large corporate clients, while smaller businesses (middle market and small family businesses) will be handled by a different group or groups. This is because large and small businesses have different needs and levels of sophistication. They also often require different types of products and services. Asset Valuation and Financial Statement Analysis are two electives offered by the Finance and Accounting Departments, respectively, that provide skills that are helpful for this type of job.

Credit Officer

Credit Officers support the loan officers by being the primary person doing the analytical work to assess the credit quality of businesses seeking to borrow money. They also monitor existing loans in a banks’ portfolio, monitoring the status of the loans, the condition of the companies that have borrowed money, and any other risks that could impact credit quality. Credit officers are a key line of defense within a bank. If they don’t do their jobs well, the bank could make loans to low-quality companies and lose money if those loans aren’t paid back. The bank could also fail to react to problems with their existing loans, and not be able to deal with them in time to prevent losses. In order to be a good credit officer, one needs to have good corporate finance and accounting skills. Credit officers need to be able to read and analyze company financial reports and other financial information provided by companies. They must also put together and analyze projections of a companies’ future financial results as part of their analyses. Asset Valuation, financial Modeling, and Financial Statement Analysis are very useful courses for this career path. Additional coursework in financial accounting is also helpful.[/su_spoiler]

Workout

The Workout group is a group of loan and credit officers within a bank that deals with problem loans, including loans on which the companies have stopped making interest or principal payments. They work with the companies to figure out what can be done to maximize the amount of money that the bank recovers from each troubled loan. They could throw the company into bankruptcy, they could modify the loan to make it easier to repay, or they could loosen some of the loan’s other terms and restrictions that could be causing problems for the company. This group is usually staffed by more experienced loan officers and credit officers. In addition to finance and accounting skills, these jobs also require knowledge of the bankruptcy process and other areas of business law.[/su_spoiler]

Other Bank Products and Services for Business Customers

In many banks, relationship officers are also responsible for selling other bank services (besides loans) to their business customers. In some banks these services are sold by specialists. These services include cash management (checking accounts, deposits, wire transfers, etc.), custody (maintaining accounts to hold bonds, stocks, and other marketable securities), foreign exchange (currencies and hedging products), corporate credit card programs, and equipment leasing.[/su_spoiler]

Consumer Banking/Branch Management

Most banks operate local branches that provide banking services to individual consumers and local small businesses. The services for consumers include savings accounts, checking accounts, mortgage loans, car loans, credit lines and home equity loans. For small businesses, they offer these same services, plus they also provide business loans, cash management services, and leasing. Within a bank branch, there is usually at least one professional who specializes in making loans, which requires finance skills. Financial professionals also well-positioned to serve as branch managers, overseeing all of the operations of the branch. In addition to finance skills, branch managers need customer services skill, since they are dealing with the public, and must educate people and handle complaints and problems that arise with people’s accounts and loans.[/su_spoiler]

Private Banking

Private banking is the area of the bank that provides banking services to wealthy individuals ($1 million and higher) and families. As families get wealthier, their banking needs often become more complex. In addition to normal consumer banking products such as checking accounts and mortgages, they often require products such as asset management, business loans, tax planning, international banking, trust accounts, wire transfers, and estate services. Very wealthy families also sometimes need services such as aircraft loans and art loans. Because of the increased complexity that serving their needs requires, they usually are covered by a different group of officers within the bank – the private bankers. Individuals who perform this function must have solid banking and finance skills, but must also enjoy working with people and have good selling and relationship management skills. A helpful course for students interested in this area is FIN 4004 (Wills, Trusts and Estates). Individuals interested in pursuing a career in private banking must have solid people skills. A downside to this career path is that you must also be willing to deal with egos, since many wealthy people have them. However, because of the nature of the client base, you will meet many very successful people, which can enable you to build a good network.  [/su_spoiler]

Trusts and Estates

This is the area of the bank that deals with wills, trusts, and estates. Many wealthy families set up trusts and trust accounts to control a significant proportion of their wealth in order to reduce their tax liabilities and more efficiently distribute wealth to their heirs. Trust officers oversee these accounts and ensure that they are managed in the way that the family and their wills and other legal agreements have specified. They also advise living clients on how best to structure their financial accounts, legal entities and will in order to achieve their goals with regard to passing as much wealth as possible to their desired beneficiaries (spouse, heirs, charities). In order to be a trust officer, one must not only understand finance, but have a solid knowledge of the laws and regulations related to wills, trusts and estates. For students interested in this area, we highly recommend that they take FIN 4004 (Wills, Trusts and Estates).[/su_spoiler]

Credit Cards

Many large banks have significant credit card operations. This part of the bank markets credit cards to the bank’s retail customers and then monitors the performance of the bank’s credit card portfolio. The marketing part of the operation is very consumer-oriented, and requires professionals with finance skills who also understand how to market a product (credit cards) to consumers. Once the credit card accounts have been opened, finance professionals are required to monitor the bank’s portfolio of credit card accounts. In addition to tracking the borrowing, payment and delinquency statistics of the portfolio, finance professionals must also proactively analyze potential risks to the portfolio such as interest rate changes, economic downturns and regulatory changes. Credit card businesses require a broad array of skills in addition to finance, ranging from marketing to quantitative analysis and statistics.[/su_spoiler]

Risk Management

Banks have a wide variety of risks in their operations, including credit risk (the risk that loans will not be repaid), interest rate risk (the risk that interest rates will move in a direction that hurts the bank), financing risk (the risk that the bank will not be able to access new capital), liquidity risk (the risk that cash will not be accessible when needed) and regulatory risk (the risk that rules and laws will be violated or will change in ways that adversely impact the bank’s business). These risks are often interrelated and depend on a large number of variables. They are very complex to analyze as a result, especially when a bank has thousands of loans and customers and operates in numerous markets (and often in multiple countries). In order for a bank to avoid major losses (which would harm their depositors), banks have teams of finance professionals that constantly monitor the bank’s exposures to various risks in its loan portfolios, credit card operations, and other businesses. These analyses are highly quantitative, and require not only understanding of finance, but also h3 quantitative skills, including statistics, modeling and programming. This is an ideal area for students who are double-majoring in Finance and Business Information Technology. It is also ideal for finance students with minors in math, statistics or computer science.

Operations

Banks are extremely complex entities, with very complicated systems and operations to run the bank’s day-to-day businesses. Banks have to track loans and credit cards, process checks and other transactions, shift cash to where it is needed, and maintain data on their customers and their loans and credit balances. These operations require complex databases and information systems, as well as large staffs to operate and maintain them. Finance professionals work throughout these various areas of a bank’s operations. They manage people and processes, monitor systems and their risks, help gather and organize data, and work to making processes more efficient. This is an especially good area for individuals who are double-majoring in finance and BIT (Business Information Technology).[/su_spoiler]

Banking-Related Government Career Paths

The Financial Services Management Option also provides excellent preparation for students who are interested in pursuing jobs with government agencies that regulate banks, as well as financial institutions affiliated with the US government. There are a number of institutions within the Federal Government that provide banking services and other that regulate and interact with commercial banks. Finance professionals often start at a government agency, gain significant experience, and then transition to the private sector. The following are career paths in the government sector for which the Investment Management Option is appropriate:

Regulatory Agencies

There are a number of federal and state agencies that regulate businesses, financial institutions and financial markets. These agencies require finance specialists who understand the entities and financial products that the agencies are regulating. Financial institutions that are regulated include banks, insurance companies, broker-dealers, asset managers, and investment banks. Financial products that are regulated include stocks, bonds, derivatives and mutual funds. In addition, corporations are subject to regulations regarding financial reports and transactions such as stock and bond offerings and mergers and acquisitions. Major financial regulators at the federal (US) level include the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), the Commodity Futures Trading Commission (CFTC), the Office of the Controller of the Currency (OCC), and the Federal Reserve. At the state level, each individual state has regulatory bodies that regulate corporations, insurance companies and banks. Finance professionals also play important roles in agencies that regulate non-financial segments of the economy. Industries that are heavily regulated at the state and federal level include utilities, telecommunications, broadcasting, transportation, weapons manufacturing, and healthcare. The regulatory agencies overseeing these industries require people who can monitor the financial condition of the companies being regulated and analyze the financial ramifications of various regulatory changes. Finance professionals within these agencies review and analyze financial documents, market data, and internal company reports and data to ensure that laws and regulations are being complied with. They are also trying to protect investors, prevent market abuses, and prevent the entities that they are regulating from taking excessive risk. These jobs can provide an excellent way to learn about a market, its financial products, its risks, and its regulations.   People in these positions often later transition into a career in the private sector.   Financial institutions often like to hire professionals with a government regulatory background for positions in compliance and risk management.[/su_spoiler]

Government Financial Institutions

There are a large number of financial institutions in the public sector that provide a variety of funding services for government entities, as well as for private sector companies and individuals. The most important of these is the Federal Reserve, which is the central bank of the United States. The Federal Reserve sets the monetary policy for the country, provides backup liquidity to the US banking system, and also acts as the bank for the US Government. Other major financial institutions affiliate with the US government include Fannie Mae and Freddie Mac, two huge institutions that provide liquidity for the mortgage markets; the Farm Credit Banks, which provide financing for the agricultural sector; and the Federal Home Loan Banks. Each of these institutions has a variety of finance jobs. Fannie Mae and Freddie Mac provide opportunities for students who are interested in the fixed income (bond) markets, since they are both major issuers of mortgage backed securities.   The Federal Reserve has excellent opportunities for students who are interested in the big picture of how the US financial system and economy work, and is therefore ideal for students who are double majoring in Finance and Economics.[/su_spoiler]

Law Enforcement Agencies

With the growth of financial transactions over the internet and the expansion of global financial transactions, there has been an increased emphasis on fighting financial crimes such as money laundering, bank fraud, securities fraud, tax evasion and Ponzi schemes, as well as cybercrimes such as phishing and identity theft related to bank accounts and credit cards. The investigations of many of these crimes by law enforcement agencies such as state police and the FBI often require significant financial expertise and analysis, which finance majors can provide. The IRS and state and local tax agencies also require finance professionals for analytical and investigative work.[/su_spoiler]

Real Estate

The real estate industry contains thousands of finance professionals who perform a wide variety of jobs, from the up-front process of planning and financing a project, through the various stages of its construction, to its ongoing management once it has been built and occupied. One aspect that most real estate projects have in common is that they require financing, which is most often supplied by banks. As a result, understanding how banks work and provide financing is an excellent way to prepare for a finance career in real estate. Virginia Tech’s Finance Department offers a course in Real Estate Finance (FIN 4154). The university also offers a Real Estate Minor, which includes real estate-related coursework from a number of areas of the university. The following are a few of the more common roles for finance professionals within the real estate field:

Real Estate Development

Large real estate projects, such as office buildings, residential subdivisions, apartment complexes and shopping malls involve large amounts of capital investment and risk. Because of the amount of money and risk involved, these projects are usually very carefully planned, budgeted and analyzed before the decision to proceed with construction is made. A major part of the process is putting together the financial budgets and forecasts for the project. These take into account not only the costs and timing for building the project, but also the ongoing revenues (such as rents) and costs (utilities, taxes, etc.) associated with the property over the longer term. Once those numbers are in place, one must then perform a financial analysis that determines whether the project will provide a sufficient return on investment for its investors.[/su_spoiler]

Real Estate Finance

Once it has been determined that a project is financially attractive and the decision to go forward has been made, the real estate company must often raise financing for the project, usually in the form of debt (loans), although sometimes is also in the form of equity investments from other investors. Finance professionals are involved in both sides of this process, both working for the real estate developer that is seeking financing, as well as for the financial institution that is providing it. The developer’s finance professionals must assemble the necessary financial information and documentation for the lenders and then work with the lenders to explain the financial merits of the project. They are also involved in negotiations with the lenders regarding the structure and terms (interest rates, repayment schedule, etc.) of the financing, as well as the preparation of the various documents required in the financing process. Banks and other financial institutions that provide financing to the real estate industry are also large employers of finance majors. They need professionals who can analyze real estate project (both from a financial and business standpoint) and determine their potential value and creditworthiness. Their finance professionals must also work with the real estate company to negotiate a financing package that provides terms that are acceptable to the developer, but are also prudent and profitable for the financial institution. Banks are the institutions that provide the most financing for real estate projects, but investment banks, insurance companies, pension funds also arrange and provide real estate financing.[/su_spoiler]

Project Management

Finance professionals are not only involved in the planning phase of a project, but are also involved during its construction. Throughout a project’s construction phase, costs must be estimated, tracked and analyzed to ensure that the building is being built in a financially profitable manner. Any proposed changes to the project must also be analyzed to determine their impact on the project’s cost and financial returns.  [/su_spoiler]

Property Management

Once a building has been built, it must be managed. Part of the process of managing a building involves overseeing the building’s finances: its revenues (rental income), costs (utilities, maintenance, supplies) and capital spending needs (new equipment and structural upgrades). There is also a need to interact with the building’s financing providers (banks and investors) on an ongoing basis. The providers of financing usually require periodic reports about how the building is doing (occupancy rates, revenues, profitability, operating problems, capital spending needs, etc.) In addition, the value of the building must be periodically updated, in case the building needs to be refinanced or sold.[/su_spoiler]

Real Estate Investing

There are numerous financial institutions, companies and wealthy individuals that invest in existing real estate. Their goal is to buy buildings and land, earn income from them, and then sell them at a profit in the future. Institutions which do this include real estate investment trusts (REITs), corporations, pension funds, and hedge funds. They all employ finance professionals to evaluate properties that are potential investments and choose the ones that can provide attractive returns. Finance professionals also assist in the acquisition process and then monitor real estate assets after they have been acquired. In evaluating real estate investments, finance professionals must perform valuation analyses, including forecasting the projects’ revenues, costs and cash flows. Once a decision has been made to proceed with a property acquisition, they must also often deal with financial institutions from which they are borrowing money to finance the purchase. They must understand how loans and other forms of financing work, and must be able to negotiate them with banks and other financial institutions and work with lawyers on the necessary documentation required for the financing. Once real estate projects have been bought, the real estate finance professionals must monitor and evaluate their ongoing financial performance (revenues, costs and cash flows), interact with the financial institutions that provided the financing, and periodically update the projects’ valuations in case opportunities arise to sell at a profit.[/su_spoiler]