Introductory description

The module is designed to help students gain an in-depth understanding of banks and financial institutions.

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.

The module studies banks from the following perspectives.
To begin with, it studies banks as stand-alone entities that are created by unique financial contracts, such as collateralized loan contracts and demandable deposit contracts, with insights on banks' high leverage as compared to non-financial firms.
The module also examines banks from the inside, in terms of their internal contracting and organizational structures, for example, to under bankers' compensation contracts and the scope of banks.
The module then examines banks in the markets where they operate, such as loan markets and wholesale funding markets.
Finally, the module examines banks and their roles in the macroeconomy, such as how credit cycles can amplify business cycles and banks' role in the credit channel of monetary policy.

Learning outcomes

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

• Demonstrate understanding of the uniqueness of prevalent contracts in banking as well as banks' high leverage as compared to non-financial firms.
• Demonstrate understanding of the internal contracting in modern banking and banks' organizational structures.
• Demonstrate understanding of the working of credit markets as well as banks' wholesale funding markets.
• Demonstrate understanding of how credit cycles can amplify business cycles and banks' role in the credit channel of monetary policy.
• Apply agency theory in the context of banking to analyze issues such as bankers' compensation.
• Apply theories from information economics to analyze the design of loan contracts and credit market competition.
• Apply concepts such as risk-sharing to understand issues like interbank lending and the design of demandable deposit contracts
• Apply concepts such as risk-sharing to understand issues like interbank lending and the design of demandable deposit contracts

Indicative reading list

Reading lists can be found in Talis

Subject specific skills

Analyze the incentive implications of compensation contracts within banks.
Analyze credit market competition under asymmetric information.
Analyze the banking sector's impact on the macroeconomy
Use the framework of modern finance theory to analyze issues in banking.

Transferable skills

Written communication