Principles of Financial Intermediation

This course

• describes the main products and functions of banks,
• analyzes banks’ risks, using as a vehicle their main financial statements,
• explores bank risk management, placing emphasis on the incentives of all major players –from bank employees all the way up to the top management of the supervisory authorities–, as well as on asymmetric information, market and regulatory discipline, and market failures,
• describes the multi-faceted interactions between banks, the financial system, governments, central banks and the economy, including the extensive bank-safety net,
• highlights the logical underpinnings of the complex institutional framework that governs the operation of financial intermediaries – the economic case for each regulation and its potential side-effects,
• uses current economic and financial developments, both domestic and international, to tie the course to the real world.

After completing this course, students are expected to

• understand banks’ and other intermediaries’ functions and risks,
• understand the role and trade-offs of the institutional framework,
• assess the likely impact and the potential side effects of changes in the institutional framework on bank strategies,
• make better cost-benefit analyses of proposed regulations,
• have developed the skills and the capacity to continue learning as regulators and supervisors, high-level employees of banks, financial institutions and other corporations, as well as attorneys.