FIN41670 Banking & Financ Institutions

Academic Year 2022/2023

Banks are unique private companies. They are the guardians of the traditional payment system used by all of us on a daily basis. They act to “grease the wheel” of commercial activity across the entire economy, smoothing consumption and investment over the lifetime of households and firms, intermediating funds to borrowers from agents with savings, creating liquidity through lending. However, given their central role in all of our economic lives, they are also potentially fragile institutions. They transform liquid deposits into long term investments such as loans and securities. They are highly leveraged, often holding equity less than 4 per cent of their total assets. Given the maturity mismatch inherent between their loan and deposit books along with the “fractional reserve” nature of their balance sheet, they are permanently at risk of a “bank run”, where the amount of liquid assets available cannot meet the claims of all depositors.
On top of all of this, banks are interconnected to the rest of the economy to such a degree that, when banking crises occur, systemic economic crises with prolonged aggregate effects usually ensue. Unfortunately for all of us, such crises are more frequent than we would like.
In this module, I will aim to provide students with fundamental principles of banking. Students will learn about the unique nature of banking companies, the structure of their balance sheet, and the economics of financial intermediation. Upon this core understanding, we will build up an understanding of the ways in which regulators try to reduce the riskiness of the banking sector, to mitigate the risk of bank failures and systemic crises. This will include a historic view on the pre-crisis regulatory environment (“Basel one and two”) as well as the post-financial-crisis regulatory response.
Students will be exposed to strands of the empirical economics literature on banking, covering the causes of the US 2007 mortgage crisis, and the clean-up of Non-Performing Loans.
Finally, we will discuss the performance of the banking sector during the COVID-19 pandemic so far.

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Curricular information is subject to change

Learning Outcomes:

On completing this module, you will be able to:
1. Critically review the core principles of banking, with a focus on what makes banks unique, as well as critically evaluate the need to more (or less) financial regulation;
2. Evaluate, summarize and discuss the research contributions and findings of top journal academic papers in empirical banking;
3. Work in teams to manipulate large datasets, and develop econometric models using a statistical package (e.g., Stata) to test theories and hypotheses;
4. Demonstrate sound critical, analytical, and presentation skills, discuss and write-up your own research results in academic paper format;

Indicative Module Content:

Topic 1: Money and the financial system
Reading list:
• Cecchetti-Schoenholtz: Chapters 1-3
– An introduction to money and the financial system
– Money and the payments system
– Financial Instruments, financial markets, and financial institutions
• Kumhof and Jakab, 2016, The Truth About Banks, IMF Finance & Development, March 2016, Vol. 53, No. 1.
• McLeay, Radia, Thomas, “Money Creation in the Modern Economy”, Bank of England Quarterly Bulletin 2014 Q1.
• Richard Werner (2014), Can banks individually create money out of nothing? – the theories and the empirical evidence. International Review of Financial Analysis, Vol. 36, pp 1-19.
• Rendahl and Freund, “Banks do not create money out of thin air”, VoxEU

Topic 2: The Economics of Financial Intermediation
Reading list:
• Cecchtti-Schoenholtz: Chapter 11
• Òscar Jordà, Moritz Schularick, Alan M. Taylor; The great mortgaging: housing finance, crises and business cycles, Economic Policy, Volume 31, Issue 85, 1 January 2016, Pages 107–152

Topic 3: Bank Balance Sheets
Reading List:
• Cecchetti-Schoenholtz, Chapter 12
– Depository institutions: banks and bank management
• Choudry, Chapter 1, 8, 9
– Bank Business and Capital
– Bank Liquidity Risk Management
– A sustainable bank business model
• Benoit Couere: Assessing the implications of negative interest rates
• Jane Kelly and Samantha Myers, Fixed rate mortgages – building resilience or generating risk? Central Bank Financial Stability Note 2019, No. 5
• Florian Heider, Farzad Saidi and Glenn Schepens, BANKS AND NEGATIVE INTEREST RATES, CEPR DP15611

Topic 4: Finance, the Real Economy and Financial Crises
Reading List:
• Alexander Popov (2017), “Evidence on finance and economic growth”, ECB Working Paper No. 2115.
• Luc Laeven and Fabián Valencia (2012), “Systemic Banking Crises Database: An Update”, IMF Working Paper 2012 No. 163
• Finance and Business Cycles: The Credit-Driven Household Demand Channel: Atif Mian and Amir Sufi: The Journal of Economic Perspectives , Vol. 32, No. 3 (Summer 2018), pp. 31-58

Topic 5: Bank Regulation before the crisis: Basel 1, and 2
Reading List:
• Benh et al: Risk weights, lending, and financial stability: Limits to model-based capital regulation
• Cecchetti-Schoenholtz Chapter 14
– Regulating the financial system

Topic 6: Bank Regulation in response to the crisis: Basel 3 and the growth of macroprudential policy

• Andy Haldane, (2017), Rethinking Financial Stability, Speech given to PIIE conference ‘Rethinking macroeconomic policy IV’, Washington DC.
• Aiyar, Calomiris, Wieladek (2014), A Primer on bank capital regulation: Theory, empirics and policy.
• David Aikman, Jonathan Bridges, Anil Kashyap, and Caspar Siegert, 2019/ Would Macroprudential Regulation Have
Prevented the Last Crisis?. Journal of Economic Perspectives—Volume 33, Number 1—Winter 2019—Pages 107–130

Topic 7: Case Study: The US Mortgage Market and the financial crisis

Reading list:
• Atif Mian, Amir Sufi; The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis, The Quarterly Journal of Economics, Volume 124, Issue 4, 1 November 2009, Pages 1449–1496
• Manuel Adelino, Antoinette Schoar, Felipe Severino; Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class, The Review of Financial Studies, Volume 29, Issue 7, 1 July 2016, Pages 1635–1670

Topic 8: Case Study: Mortgage default, mortgage modification and foreclosure delay post-crisis
Reading List:
• Fergal McCann, 2017, “Resolving a Non-Performing Loan Crisis: The Ongoing Case of the Irish Mortgage Market”, Central Bank of Ireland RTP 10/RT/17
• Sumit Agarwal, Gene Amromin, Itzhak Ben-David, Souphala Chomsisengphet, Tomasz Piskorski, and Amit Seru, "Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program," Journal of Political Economy 125, no. 3 (June 2017): 654-712.
• Mayer, Christopher, Edward Morrison, Tomasz Piskorski, and Arpit Gupta. 2014. "Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide." American Economic Review, 104(9): 2830-57.
• Donnery, Sharon, and co-authors: Resolving Non-Performing Loans in Ireland: 2010-2018, Central Bank of Ireland Quarterly Bulletin 02/18.
• Fergal McCann and Terry O'Malley "Resolving mortgage distress after COVID-19: some lessons from the last crisis". Central Bank of Ireland Financial Stability Note 2020 No. 7.
• Terry O’Malley. 2018. Long-Term Mortgage Arrears in Ireland. CBI Financial Stability Notes.
• Geanakoplos. 2010. Solving the Present Crisis. FRBNY Economic Policy Review
• Piskorski, Seru, Vig. 2010. Securitization and distressed loan renegotiation: Evidence from the subprime mortgage crisis. Journal of Financial Economics.

Topic 9: The Banking Sector and COVID-19
Reading list: Central Bank of Ireland Financial Stability Reviews 2020:1, 2020:2 ("Resilience" sections)

Student Effort Type Hours




Requirements, Exclusions and Recommendations

Not applicable to this module.

Module Requisites and Incompatibles
Not applicable to this module.
Assessment Strategy  
Description Timing Open Book Exam Component Scale Must Pass Component % of Final Grade
Presentation: Video Presentation based on material covered in Topic 1.
You will have one week to prepare 3-5 slides as a group, and then record and upload a video. Not necessary for all group members to speak.
Week 5 n/a Graded No


Presentation: Video presentation #2 - same format as #1 Week 8 n/a Graded No


Multiple Choice Questionnaire (Short): MCQ Exam based on material covered in Topics 1, 2 and 3 Week 6 n/a Graded No


Multiple Choice Questionnaire (Short): MCQ Exam Week 10 n/a Graded No


Examination: Final Exam - written 2 hour End of Trimester Exam No Graded No


Carry forward of passed components
Resit In Terminal Exam
Summer Yes - 1 Hour
Feedback Strategy/Strategies

• Group/class feedback, post-assessment
• Online automated feedback

How will my Feedback be Delivered?

Not yet recorded.

Lecture Offering 1 Week(s) - 20, 21, 23, 24, 25, 26, 29, 30, 32, 33 Mon 17:00 - 18:50
Lecture Offering 1 Week(s) - 22, 31 Tues 17:00 - 18:50
Lecture Offering 2 Week(s) - 20, 21, 23, 24, 25, 26, 29, 30, 32, 33 Tues 17:00 - 18:50
Lecture Offering 2 Week(s) - 22, 31 Tues 17:00 - 18:50

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