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.

Textbook
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 2016

RPRD 802-Reading-List-Sept 28 2016

Exercises 2016

RPRD 802 Exercise 1 2016

RPRD 802 Exercise 2 2016

RPRD 802 Exercise Sheet 3 2016

Wk 1 Sep 12-16

Contemporary Financial Intermediation Ch 2

Contemporary Financial Intermediation Ch 3

McKeown Canadian Banks Summary 2016

Berger et al ch 2 Oxford Banking 2nd ed

Boot and Thakor ch 3 Oxford Banking 2nd ed

Wk 2 Sep 19-23

Berger et al ch 10 Oxford Banking 2nd ed

Berger et el ch 25 Oxford Banking 2nd ed

Wk 3 Sep 26 – 30

Hotchkiss et al Bankruptcy Survey Handbook

Roberts and Sufi Fin Contracitng Survey 2009

Theory of Corporate Finance Ch 1

Theory of Corporate Finance Ch 2

Snudden_FinPolModels_Sept2016

Wk 4 Oct 3-7

Kotlikoff Budgetcommitte submision 2015

Berger et al ch 20 Oxford Banking 2nd ed

Berger et al ch 28 Oxford Banking 2nd ed

IMF Insurance Trends Systemic Risk April 2016

Le Pan Insurance CDH 2016 Commentary 454_0

Plantin Rochet When Insurers Go Bust Ch 1-3

Thimann How insurers diifer from banks systemic risk 2014

Wk 5 Oct 10-14

Banks, Markets, and the Allocation of Risks in an Economy

Deciphering the Liquidity and Credit Crunch 2007-2008

Frank Milne CDH 2008 commentary_269

Rajan2005 Has Financial Development Made the Word Riskier

W.R. White Procyclicality in the Financial System 2006

Krugman How Did Economists Get It So Wrong 2009

Ball The Fed and Lehman 2016

Wk 6 Oct 17-21

Brunnermeier and Oehmke 2012

Chant The ABCP Crisis in Canada 2009

Xiong Bubbles Crises and Heterogeneous Beliefs 2013 Review

Wk 7 Oct 24-28

Gennotte-Leland.1990

Hart 1975 Incomplete markets

Leland Rubinstein the market crash 6 months after 1988

Milne-Shefrin-JET-1987

LevitinWachter Explaining the Housing Bubble

Mian & Sufi House of Debt ch 1

Mian & Sufi House of Debt ch 2

Mian & Sufi House of Debt ch 3

Mian & Sufi House of Debt ch 8

Wk 8 Nov 1-4

Borio Lowe 2002

Borio Lowe 2004

Chamon-Crowe-Predictive-Indicators-of-Financial-Crises

Shin Early Warning Inidicators 2013

Adrain Aschcraft Cetorelli ch 16 Oxford Banking 2nd ed

Casu Sarkisyan ch 15 Oxford Banking 2nd ed

Gorton Metrick Run on the Repo JFE 2012

Week 9 Nov 7-11

Das et al. Sovereign Debt Stylized Facts IMFWP 2012

Adrian Discussion of Pierret (2015)

Goldstein Financial Crises Review 2013

Pierret Systemic Risk 2015

Week 10 Nov 14-18

Elsinger Lehar Summer networkSurvey 2013

Upper Simulation methods networks interbank

Week 11 Nov 21-25

Glasserman Young Contagion JEL 2016

Barth Brummer Li and Nolle ch 26 Oxford Banking 2nd ed

LI Milne Qiu Interconnected Market Freezes 2016-Journal_of_Money_Credit_and_Banking

Morrison Systemic Risks and TNTF 2011

Stern and Feldman 2004TBTF chs 2-4

Wk 12 Nov 28-Dec 2

DeYoung Kowalick and Reidhill 2013 JFI forthcoming

Ignatowski Korte Bank ResolutionSSRN-id2408447

Herring Carmassich 4 Oxford Banking 2nd ed (00000003)

Acharya et al End of Market Discipline 2014

Hoenig Avoiding Taxpayer Funded Bailouts 2013

Hoenig TBTF Subsidies lit review

Noss Sowerbutts 2102