Syllabus Economics of Banking MEF 2 2015-03-02
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Page 1 of 2 Economics of Banking (MEF-2) Christos Koulovatianos Professor of Macroeconomics Department of Economics University of Luxembourg 162A avenue de la Faïencerie Campus Limpertsberg, BRC 1.06E L-1511 Luxembourg Email: [email protected] Office hours: by appointment Course Website Check Moodle regularly Economics of Banking (MEF-2) Syllabus – March 2, 2015 (Provisional) Course Language: The language of instruction for the course will be English. The questions of the midterm and the final examination will be offered in the English language. Brief course description We will link up standard investment and financial theory with the microeconomic theory of banks. We will question why banks exist and study what they do, in order to understand the fragility of the banking sector. We will cover the institutional role of Central banks and we will formally ask how to set laws that may prevent us from facing banking crises. Objectives Banking crises are endemic in all types of economies, both in industrialized and in developing economies. At the same time, the early development of a strong banking sector often precedes success development stories of economies. The socioeconomic problem faced by such facts is what banking laws and rules should a country implement in order to minimize the possibility of a banking crisis without preventing the development of the banking sector. In this class we will attempt to give formal structure to these broad questions. We will start with the question “why do banks exist?” and we will focus on the answer given by the asymmetric-information answer, i.e., “because banks have the right to know secrets about their customers, so they can borrow and lend using those secrets.” We will use contract theory in order to understand what guarantees
Transcript of Syllabus Economics of Banking MEF 2 2015-03-02
Page 1 of 2 Economics of Banking (MEF-2)
Christos Koulovatianos Professor of Macroeconomics Department of Economics University of Luxembourg 162A avenue de la Faïencerie Campus Limpertsberg, BRC 1.06E L-1511 Luxembourg Email: [email protected] Office hours: by appointment Course Website Check Moodle regularly Economics of Banking (MEF-2) Syllabus – March 2, 2015 (Provisional) Course Language: The language of instruction for the course will be English. The questions of the midterm and the final examination will be offered in the English language.
Brief course description
We will link up standard investment and financial theory with the microeconomic theory of banks. We will question why banks exist and study what they do, in order to understand the fragility of the banking sector. We will cover the institutional role of Central banks and we will formally ask how to set laws that may prevent us from facing banking crises.
Objectives
Banking crises are endemic in all types of economies, both in industrialized and in developing economies. At the same time, the early development of a strong banking sector often precedes success development stories of economies. The socioeconomic problem faced by such facts is what banking laws and rules should a country implement in order to minimize the possibility of a banking crisis without preventing the development of the banking sector. In this class we will attempt to give formal structure to these broad questions. We will start with the question “why do banks exist?” and we will focus on the answer given by the asymmetric-information answer, i.e., “because banks have the right to know secrets about their customers, so they can borrow and lend using those secrets.” We will use contract theory in order to understand what guarantees
Page 2 of 2 Economics of Banking (MEF-2)
banks acquire from their customers in order to establish their credibility. Then we will study how imperfections in such contract agreements may make banks fragile, paying also attention to asset-price overreaction in capital markets. Finally we will study the intervention limits of Central Banks to the banking sector and we will formally pose banking regulation questions.
List of topics
1. Concepts from investment analysis 2. Asset pricing under complete information (bonds and stocks) 3. Banks in general equilibrium 4. Lender-borrower relationships 5. Credit rationing 6. Banks and the macroeconomy 7. Bank fragility and asset-price overreaction to “disaster episodes” 8. Default risk and bank fragility 9. The role of central banks 10. Regulation of banks
Textbook
"Microeconomics of Banking" by Xavier Freixas and Jean-Charles Rochet (MIT Press 1st or 2nd edition) (in English http://mitpress.mit.edu/books/microeconomics-banking )
There will also be slides and some supporting notes as a complement.
Evaluation
Homeworks (three large problem sets): 15% Final exam: 85% (dates and places of exams will be announced later)
Exercises for the class
The exercises instructor will be Dimitris Mavridis ( [email protected] ). See time schedule and regular updates on Moodle.
