RPRD 802: Financial Institutions Theory and Practice

This course is an introduction to modern banking and financial institutions theory and practice. The Crisis has taught many lessons that are being incorporated into the way we think about the role of intermediation in finance and the real economy.

A. Modern Financial Institutions Theory and Practice

  • What is a bank/insurance company/pension plan and what do they do? – inherent risks, risk creation, risk mitigation and transference
  • Conventional finance theory does not require banks or financial intermediaries. How do we model banks and financial intermediation?
  • The role of financial intermediaries: Basic models
  • The lender-borrower relationship: Basic issues in bank credit markets
  • Macroeconomic consequences of financial imperfections: Received wisdom and puzzles
  • Bank runs, short term borrowing markets and systemic risk: Models, recent examples, historical evidence, deposit insurance
  • Insurance companies: Risks and Regulation

B. What we have Learned Since the Crisis

This section will choose recent papers to explore current topics since the Crisis and what we have learned. They will be chosen to complement the topics in the Financial Regulation and Advanced Topics Course.

Freixas and Rochet, Microeconomics of Banking. MIT Press (Second Edition) 2008.
Shin, Risk and Liquidity, OUP, 2010.

Basic References
Berger, Molyneux, and Wilson,(eds.) The Oxford Handbook of Banking, OUP, second edition, 2015.
Thakor, Boot, (eds.) Handbook of Financial Intermediation and Banking, North-Holland 2008.
Plantin, Rochet, When Insurers Go Bust: An Economic Analysis of the Role and Design of Prudential Regulation, Princeton University Press, 2007.
Zweifel and Eisen, Insurance Economics, Springer, 2012.

Reading list 2017