Global Banking

The monetary policy decisions of central banks around the world are seen as crucial for outcomes in global financial markets. Central banks focus on setting short-term interest rates. Their decisions to adjust interest rates have enormous impacts on stock markets, bond markets, and banking. This course develops understanding of financial intermediation and banking.

It will discuss some measures to manage credit risk, off-balance sheet risk, operational risk, liquidity risk, solvency risk, etc., and how these risks are identified, measured and managed, using several risk mitigation techniques and regulatory mechanisms. aspects of the real-world analysis and strategic decision-making faced by banks in response to geopolitical, economic, regulatory, and technological change.

Part A. Central Banking and Monetary Policy

1. Money (Chap. 4, 123-127; Chap 3; Chap. 15, 379-384; Chap 20, 534-537)

2. Interest Rates (Chap. 16, Chap. 5, 146-156; Chap. 6, 168-178)

3. Monetary Policy Transmission Mechanism, Mundell Fleming Trilemma (Chap 22-24; Chap 17, 457-460)

4. Central Bank Strategy (Chap. 17) . Inflation, price rigidities, financial frictions, Long-run Philipps curve Taylor rules and it’s limitations. Inflation Targeting

5. Exchange Rates (Chap 18 -19)

6. Capital flow, Sudden Stop. (lecture notes)

7. Central Banks Structure ( Chap. 14)

Part B. Banking and the Financial System

1. Economics of Financial Intermediation (Ch. 8)

2. Banking Industry (Ch. 13) investment banks, saving banks, commercial banks.

3. Business of Banking (Ch. 11)

a) Credit & collateral;

b) (ALCO) asset & liability management (assets: real estate, ; liabilities (deposits, , correspondent accounts; liability management:

c) Bank capital management;

d) Sales & trading (fixed income, derivatives, equities);

e) International transactions (swift, incoterms).

f) Risk management (credit risk, market risk, FX risk (spot, forward, swop), operational risks, liquidity risk, off-balance sheet risk).

g) Research (global economic, by industry and equity (real estate, consumer products, technology, health care, retail).

h) Internal Audit;

4. Non-banking financial institutions.

Part C. Global banking

5. Credit crunch, liquidity & solvency, bubbles, banking panics and runs. Financial Crises (Ch. 9-10).

6. Banking Regulation (Ch. 12). Basel guidelines on capital adequacy, supervision of financial institutions, determinants and macro limitations. Systemic Risk Measures and Financial Regulation. Great Recession, stress testing.

7. Credit Ratings

8. FinTech, Cryptocurrencies.

9. Lessons for the future

10. Presentation of group projects: bank stress-testing.

Textbooks:

1. Frederic S. Mishkin, (2016) "The Economics of Money, Banking, and Financial Markets”, 11th Edition, Pearson.

2. R. Glenn Hubbard and Anthony P. O’Brien, (2017), “Money, Banking and the Financial System”, 3rd Edition, Pearson.

3. Stephen G. Cecchetti and Kermit L. Schoenholtz, (2017), “Money, Banking and Financial Markets”, 5th Edition, MacGraw Hill.

4. Mervyn King, (2016), “The End of Alchemy: Money, Banking and the Future of the Global Economy”

5. Grades: All assignments should be submitted by their due dates and times. 5% quizzes; 20% problem sets; 20% presentation/research assignment; 25% midterms, 40% accumulative final exam in-class, open books and notes.

6. The group project you will need to write up to 10–15 page report on the economic and financial solvency of the intermediary (bank or no-bank) institution. You can be optimistic or pessimistic, but you should ground your assessment in data of some kind, as well as the analytical concepts covered in the course.

Group projects