Financial Markets and Institutions

Coordinator: dr. I.P.P. van Lelyveld

Lecturers: dr. I.P.P. van Lelyveld


Course objective

The purpose of this course is to develop an understanding of the economics underlying financial intermediation, financial markets and banking, with a particular focus on the recent financial turmoil and its consequences.

Course content

We start by discussing the traditional role of commercial banks in the financial system and how banks manage risks. Topics include the major risks faced by banks, lending and asymmetric information, credit rationing, and securitisation. This leads us into a discussion of financial fragility covering, inter alia, liquidity provision, bank runs, deposit insurance and opacity. Then we discuss how various regulations could be helpful or not. A natural follow up is laying out the causes, triggers and dynamics of the Great Crisis (2007-2009). Given the depth of the crisis, there has been a flurry in new regulation. What are the objectives of these regulations, are these or will these be met. Since traditionally regulation has been focussed on solvency will dedicate a lecture on liquidity as well as this has proven
to be quite a separate type of risk. The next two lectures cover the plumbing of the system and other large institutional participants. The former lecture will provide us some understanding of how risks in the system not only originate with the actions (i.e., trades) but also with the markets are set up. The latter will discuss how, next to (investment) banks, other large institutional investors are coming to the fore. In the final part of the course we will turn to three distinct markets: the derivatives market, the interbank and the international banking market. How do these markets operate, particularly in the crisis, and how are they evolving. Two guest lectures from practitioners will provide more colour on how central banks have handled the sovereign crisis and how asset managers function.

Course reading

In addition several mandatory academic papers will posted to Blackboard.
Lecture notes will be available on Blackboard just before each class.
Solutions for all exercises will be available after lectures.
Other non-mandatory (but useful) materials such as academic papers, press articles or book titles will be posted on Blackboard.

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