Introductory description

The module seeks to enhance students' understanding of why banks exist and what economic roles they play, the risks faced by banks in lending process, off-balance sheet banking, and banking regulation.

Module web page

Module aims

Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

An introduction to market-oriented and bank-oriented financial systems, historical development and cross-country comparisons.
An overview of banks' functions, and how banks are able to supplement financial markets.
Bank loans versus corporate bonds. Banks' advantage as inside creditors, and a discussion on the dark side of bank financing.
Banks' role in corporate liquidity provision and market making.
Deposit contract, bank runs, and deposit insurance.
Banks' role in intertemporal risk sharing, and further discussion on banks' role in asset and liability transformation (from risky to risk-free assets, and from monitored to unmonitored liabilities).
Bank risk management: credit risk, interest rate risk, liquidity risk, and market risk. Credit analysis and duration gap analysis.
Bank leverage and excessive risk-taking, financial safety net, and bank capital regulation, with a discussion on the evolution of Basel Accord.
Systemic crises, credit cycles, and the interplay between banking crisis and sovereign bond crisis. Macro-prudential regulations.
The contemporary trend of banking: securitization, shadow banking, and the transition from retail to wholesale banking.

Learning outcomes

By the end of the module, students should be able to:

• Understanding banks' role in providing intermediated financing and corporate liquidity.
• Understanding the function of bank deposits, and the intertemporal risk sharing provided by financial institutions.
• Gaining knowledge about major banking risks and the principles of bank risk management.
• Understanding risk-taking incentives in banking industry and how banking micro- and macro-prudential regulations help to maintain financial stability.
• Knowing major banking risks and the principles of bank risk management. And understanding why some risks are inevitable to banking activities.
• Understanding risk-taking incentives in banking industry and how banking micro- and macro-prudential regulations help to maintain financial stability.
• Understanding the advantages and disadvantages of bank financing.
• Understanding why some risks are inevitable to banking activities.
• Being able to critically assess contemporaneous issues in financial regulations.

Indicative reading list

Arnoud Boot, Stuart Greenbaum and Anjan Thakor, Contemporary Financial Intermediation, 3rd ed. Academic Press, 2015. (publication still expected at the moment).

Subject specific skills

For the purpose of bank risk management, understanding the principle of credit risk analysis, and that of duration gap analysis.

Transferable skills

For the purpose of bank risk management, understanding the principle of credit risk analysis, and that of duration gap analysis.