Course overview

The objective of the Systemic Risk and Prudential Policy course is to present state of the frontier research on systemic risk and to illustrate its implications for micro and macro prudential regulation as well as monetary and competition policy.

The course will begin with the definition, characterization, measurement and analysis of the determinants and consequences of systemic risk. The main models proposed in the literature will be explained, highlighting their strengths and weaknesses. Special attention will be devoted to illustrate the practical regulatory policy implications along with the main empirical findings.
The course will also cover the empirical quantitative techniques proposed in the literature for the measurement and prediction of systemic risk. The discussion will focus on the logic behind the various methodologies rather than technical aspects, emphasizing the ability to provide useful early warning signals. Moreover, given that the consequences for the aggregate macroeconomy are a crucial part of systemic risk, key interactions between macro and finance are also explained.
The last part of the course will provide a critical summary of the prudential regulation initiatives for systemic risk, highlighting the limitations of current microprudential policy, the potential of the new macroprudential approach, and the costs and benefits of the proposed policy measures.

One part of the course will be based on the book by Freixas, Laeven and Peydró on Systemic Risk, Crises and Macroprudential Policy (MIT Press, 2015).

Key benefits

  • What is – and what is not – systemic risk, and the determinants and implications of systemic risk
  • Build-up and crashes of asset-price and real estate bubbles
  • Credit bubbles, crunches and real effects of systemic risk 
  • Pervasive incentives versus psychological dimensions to excessive risk-taking 
  • The relationship between monetary policy and financial stability
  • Competition policy and excessive risk-taking
  • Contagion and liquidity models of systemic risk 
  • Micro and macro prudential policy and their differences
  • Positive and negative aspects of the proposed regulation (Basel III, Dobb-Frank, Vickers report, ESRB, EU directives, EBA…) and other possible policy prudential tools 
  • Systemic risk measurement and modelling for risk management (including: CoVaR, MES, Stress Testing) and the predictive ability of the systemic risk measures and early warning signals
  • Network analysis to measure systemic risk
  • Case studies on major crises: Differences and similarities between major systemic crises