Course: Financial intermediation
Professor: Sergio Vicente
ECTS: 1
Aims:
The aim of the Financial Intermediation course is to provide students with a comprehensive understanding of the role of financial intermediaries in the provision of funding. This course will explore the concepts of liquidity provision, monitoring, and government guarantees. We will study seminal models and recent advances in the field to gain insights into these topics. By the end of this course, students will be able to critically evaluate seminal banking models and understand the implications of recent research. Moreover, students will develop analytical skills and gain a comprehensive understanding of the field of financial intermediation.
Learning Objectives:
By the end of this course, students will be able to:
From a positive angle, understand the role of banks in the creation of liquidity, as well as recognize its limits in the context of some impossibility results related to liquidity provision. From a normative angle, recognize the concepts of fragility, coordination failures, and bank runs; understand the implications of liquidity dry-ups and fire sales; and examine recent research on endogenous liquidity.
Familiarize themselves with standard debt contracts and recognize their role in minimizing dead-weight costs; study the concept of costly state verification and the role of monitoring in this context; analyze delegated monitoring as a means to minimize costs through diversification; understand the role of monitoring ability in providing incentives and mitigating agency problems.
Explore the distortive effects of government guarantees, including deposit insurance and “Too Big To Fail” implicit guarantees; analyze risk-shifting incentives generated by deposit insurance and the need for regulation; make sense of seminal results on risk-shifting, such as Merton (1977) and Kareken and Wallace (1978) models; study recent papers on regulation, including the works of Bahaj and Malherbe (2020) and Admati, DeMarzo, Hellwig, and Pfleiderer (2018).
Registration & Practical Information: Soon available on Moodle