Centre for Financial & Management Studies (CeFiMS) - University of London

Banking and Capital Markets [FME103]

Introduction

This course examines the underlying principles and characteristics of banking and financial markets that are the foundation for understanding both their normal role in economies and the headline events. It concentrates on the theoretical and empirical scientific knowledge produced by modern research on banking. Since such knowledge is never fully established or ‘proven’, it enables the student to examine opposing points of view and to discuss the published studies.

Aims & Objectives

After completing the course, the student should have gained an understanding of the functioning of the financial sector as a whole, and be familiar with some of the most important theoretical and historical developments. This should enable them to be more effective in your own research on financial institutions, and provide a better understanding of them, which is likely to help them make the right decisions in the workplace as well.

Resources

Students receive a looseleaf binder containing eight ‘course units’; these texts are carefully structured to provide the main teaching and are equivalent to traditional course lectures, defining and exploring the main concepts and issues, locating these within current debate and introducing and linking the further assigned readings.

Two assignments (to be marked by your CeFiMS tutors), and a specimen examination paper are also included within the student pack, along with the following:

Textbook: Franklin Allen and Douglas Gale, Comparing Financial Systems, 2000, The MIT Press Ltd, ISBN 0262011778/0262511258.

Readings: A compilation of further readings: recently published articles or seminal writings which augment and illustrate the main text.

Course Timetable: This shows the linkage between the various components of the course and indicates the schedule for reading the texts, submitting assignments, etc.

Course Content

• Unit 1 Bank-Based vs Market-Based Financial Systems

  • 1.1 Introduction

  • 1.2 Financial Intermediaries, Financial Markets and Flow of Funds

  • 1.3 The Financial System

  • 1.4 Comparing Financial Systems

  • 1.5 Conclusion

• Unit 2 Why do Banks Exist?

  • 2.1 Introduction

  • 2.2 Market-Based vs Intermediary-Based Mechanisms

  • 2.3 The Principles of Financial Intermediation

  • 2.4 Transaction Costs

  • 2.5 Banks as Liquidity Insurers

  • 2.6 Conclusion

• Unit 3 Why Banks Exist: Explanations Based on their Lending

  • 3.1 Introduction

  • 3.2 Delegated Monitoring

  • 3.3 Information Sharing Coalitions (Leland and Pyle, 1977)

  • 3.4 Conclusions

• Unit 4 Banks vs Capital Markets

  • 4.1 Introduction

  • 4.2 Dimensions of Comparison

  • 4.3 A Unified Model for Comparison

  • 4.4 Conclusion

• Unit 5 Credit Rationing and Overlending

  • 5.1 Introduction

  • 5.2 The Failure of Equilibrium Mechanisms and Financial Repression

  • 5.3 The Stiglitz and Weiss Model and the Assumption of Asymmetric Information

  • 5.4 Credit Rationing or Over-Lending?

  • 5.5 Conclusion

• Unit 6 Bank Runs and Regulatory Responses

  • 6.1 Introduction

  • 6.2 A Model of Bank Runs

  • 6.3 Contagion and Systemic Risk

  • 6.4 Regulatory Responses

  • 6.5 Conclusion

• Unit 7 Financial Crisis

  • 7.1 Introduction

  • 7.2 Self-Fulfilling Financial Crises

  • 7.3 Risk Shifting, Bubbles and Crises

  • 7.4 Guarantees, Moral Hazard and Banking Crisis

  • 7.5 Conclusion

• Unit 8 Portfolio Analysis

  • 8.1 Introduction

  • 8.2 Risk Management

  • 8.3 Bank Risk Management

  • 8.4 Liquidity Risk

  • 8.5 Credit Risk

  • 8.6 Conclusion

Tuition & Assessment

One two-hour examination and one assessed piece of written coursework in each module. Each course module will count for 10% of the total mark. Of this 10%, the examination will count for 70% and the coursework for 30%.