Financial Intermediation

Overview

Class Central Tips

By taking this course, students will learn the role played by financial intermediaries in modern economies, their vital role to finance investments and the sources of risk associated with such intermediation activity. The course is structured to provide students with both theoretical notions, through the derivation of models developed by the literature, and empirical application, that are based on real data analyses. The topics covered include the role of financial development and banking activity for economic growth; the role of banks for the occurrence of financial crisis and the regulatory initiatives to avoid excessive risk-taking; the propagation of financial intermediaries for macroeconomic shocks; the microeconomics of banking, with emphasis on the role of market competition and the determinants of bank-firm relationships; the technological innovation that takes the name of “Fintech revolution” and how it is potentially disrupting traditional financial intermediation. Suggested prerequisites for this course are microeconomics, econometrics and mathematics for economists.

Syllabus

Introduction to financial intermediation and bank risk management

By the end of this week, students will acquire a comprehensive understanding of financial intermediaries and grasp the distinctive role played by banks. They will gain theoretical insights on the function of banks, their objectives, the determinants of profitability and risk in banking activity. To conclude, the lesson will define metrics for assessing performance and risk, drawing insights from banks' balance sheets, income statements, and stock price data.

Finance and economic growth: the role of banks for economic development

By the end of this week, learners will be able to construct empirical tests and critically evaluate the results of the causal relationship between financial development and long-term economic growth.

Financial crises: banks’ funding structure and its implications for instability

By the end of this week you will learn how to apply the analysis of bank runs to the Global Financial Crisis of 2007-2009.

Financial crises: banks’ reaction to shocks and its macroeconomic implication

By the end of this week, learners will be able to analyze the role of the banking sector for the business cycles. In detail, the topics covered in this week regard the transmission channel of monetary policy, the amplification channel of asset prices and banking shocks for the real economy.

Bank competition and financial stability

By the end of this week, learners will be able to analyze how competition influences banks' exposure to intermediation risks. Additionally, they will understand the implications of bank competition for the emergence of financial crises.