Overview and Objectives

1. To understand the role of imperfect information and the role of financial institutions in the economy
2. To understand the specifics of banks' strategies and their impact on the overall allocation of capital in the economy
3. To understand the role of banks in maturity transformation and the inherent instability of the banking system
4. To understand the logic of banking regulation

Course Outline

1. Why do financial intermediaries exist?
2. The industrial organization approach to banking
3. Macroeconomic consequences of financial intermediation
4. Individual bank runs and systematic risk
5. Banking regulation

Basic Textbook (included in the course fees)

Freixas, X. and Rochet, J.C., Microeconomics of Banking , 2nd edition, MIT Press, 2008.

About the Instructor

Xavier Freixas is Professor at Universitat Pompeu Fabra, Emeritus Research Professor of the Barcelona GSE, and Research Fellow at CEPR. He is Chairman of the Risk Based Regulation Program of the Global Association of Risk Professionals (GARP) and past president of the European Finance Association. He has previously been Deutsche Bank Professor of European Financial Integration at Oxford University, Houblon Norman Senior Fellow of the Bank of England and Joint Executive Director Fundación de Estudios de Economía Aplicada FEDEA), and 1989-91, Professor at Montpellier and at Toulouse Universities. He has been a consultant for the European Investment Bank, the New York Fed, the European Central Bank, the World Bank, the Interamerican Development Bank, MEFF and the European Investment Bank. He is Associate Editor of Journal of Financial Intermediation, Review of Finance, Journal of Banking and Finance and Journal of Financial Services Research. He has published a number of papers in the main economic and finance journals (Journal of Financial Economics, Review of Financial Studies, Econometrica, Journal of Political Economy, and others).

Overview

The objective of this course is to present empirical applications of relevant questions for both banking theory and policy, mainly related to Systemic Risk, Crises, Macroprudential and Monetary Policy. An important objective is to read and understand scientific papers in empirical banking; to accomplish this objective, emphasis is placed on illustrating research methodologies used in empirical banking and learning the application of these methodologies to selected topics.

Selected Topics

1. Credit cycles
2. Securities and credit registers; large datasets
3. Fire sales, market and funding liquidity
4. Bank capital and macroprudential regulation
5. Risk-taking and credit channels of monetary policy
6. Real effects of financial shocks
7. Moral hazard vs. behavioral based risk-taking
8. Secular stagnation, banking and debt crises
9. Interbank contagion, bank runs and systemic risk
10. Banking globalization
11. Capital controls and capital flows to emerging markets
12. Macro vs. micro prudential policy

Basic Textbook (included in the course fees): Freixas, X., Laeven, L., and Peydró, J.L., Systemic Risk, Crises, and Macroprudential Regulation, Boston, MA: MIT Press, June 2015.

About the instructor

José-Luis Peydró is ICREA Professor of Economics at UPF, Barcelona GSE Research Professor, CREI Research Associate and CEPR Research Fellow. His research on Banking and Systemic Risk has been published in the top journals in Economics and Finance such as JFE, RFS, JF, AER and Econometrica. Professor Peydró has presented his research in top universities including Harvard, MIT, Princeton, Stanford, Columbia, NYU, LSE, Oxford and LBS and in policy organizations such as the Federal Reserve Board, New York Fed, IMF, WB, BIS, ECB, Bundesbank, and Bank of England, and has written a book on "Systemic Risk, Crises and Macroprudential Policy" published by MIT Press. José-Luis is currently a Member of the European Systemic Risk Board in Frankfurt, holds a PhD in Finance from INSEAD and a Master in Economics from CEMFI, and was awarded with the first prize by the Government of Spain for the student with highest GPA in finishing a BA in Economics in Spain in 1998.

Overview

The objective of this course is to read and understand scientific papers in empirical banking. To accomplish this objective, emphasis is placed on illustrating basic research methodologies used in empirical banking and learning the application of these methodologies to selected topics. The research methods that are specifically discussed in the class are cross-sectional research methods and the inter-temporal event study methodology. The topics that are covered include (but are not limited to) applications of Discrete Choice, Multinomial Logit, Duration, Simultaneous Equations and Event Study Methodology, and as an area of particular interest the Geography of Banking. It is evident that any empirical research should be based on theoretical foundations. All students are therefore expected to have an active interest in banking theory. Opportunities are offered during the course to explore selected theoretical models upon which empirical applications are based.

Basic Textbook (included in the course fees)

Degryse, H., Kim, M., and Ongena, S., Microeconometrics of Banking Methods, Applications, and Results, Oxford University Press, 2009.

Selected Topics

1. General methodologies
2. Cross-sectional research methods
3. Discrete Choice, Multinomial Logit, Duration, Simultaneous Equations
4. Event Study Methodology
5. Geography of Banking

About the Instructor

Steven Ongena is a professor of banking at the University of Zurich, a senior chair at the Swiss Finance Institute, a research professor at KU Leuven, and a research fellow in financial economics of CEPR. He is also a research professor at Deutsche Bundesbank. He has published more than 65 papers in refereed journals, including in the American Economic Review, Econometrica, Journal of Finance, Journal of Financial Economics, Journal of International Economics, Journal of Political Economy, Management Science and Review of Finance. In 2017 he received an ERC Advanced Grant and in 2012 a NYU-Fordham-RPI Rising Star in Finance Award.

Overview

Our understanding of the banking system fragility and the necessary regulatory framework has changed significantly since the crisis. The need for and structure of bank regulation has been radically rethought, built on better and deeper insights on bank incentives, risk externalities and strategic risk choices. This course will present theoretical and empirical work on the rationale for bank regulation and its actual functioning.  We will discuss the different elements of the financial safety net and new insights into their functioning since the crisis.  We also focus on new developments, including the increasing trend towards cross-border cooperation of regulators and supervisors, recognizing the global spill-over effects of national decisions, and the novel role of macroprudential policy in a context of risk externalities and credit cycles.

The course targets researchers, aspiring and experienced policymakers and practitioners focused on regulatory and prudential aspects.

Course Outline

1. Why regulating banks – the financial safety net, structure, institutions, and experience
2. Capital and liquidity regulation – theory and empirics
3. Deposit insurance and bank resolution – theory and empirics
4. Macro-prudential regulation – the new kid on the block
5. Cross-border cooperation between regulators and supervisors

Advance Reading

Beck, Thorsten, Elena Carletti and Itay Goldstein (2017): Financial Regulation in Europe: Foundationd and Challenges, CEPR Discussion Paper 11147; and literature cited there in 

About the Instructor

Thorsten Beck is Professor of Banking and Finance at Cass Business School, London. He is also a research fellow of the Centre for Economic Policy Research (CEPR) and the CESifo. He was professor of economics from 2008 to 2014 at Tilburg University and the founding chair of the European Banking Center  from 2008 to 2013. Previously he worked in the research department of the World Bank and has also worked as consultant for – among others -  the European Central Bank, the Bank of England, the BIS, the IMF, the European Commission, and the German Development Corporation.