| THEORY OF BANKING
(obiettivi)
The course will discuss some fundamental issues related to financial intermediation in contemporary economic systems. Why do financial intermediaries exist? What is the role they play and what are the consequences of their activities?
Preliminaries: What is a bank and what are her functions: a close look at the balance sheet of bank.
Part I
Introduction to time, uncertainty and liquidity. Asymmetric information problems: adverse selection and moral hazard
Microeconomic foundations for financial intermediation. Why do banks exist. Banks in Arrow-Debreu economies. Banks as pool of funds: Diamond-Dybvig (1983). Banks as delegated monitors: Diamond (1984).
Bank runs as outcomes of a self-fullfilling prophecy. Remedies to economic instability due to bank runs. The economic cycle and its effect on bank runs.
The effects of banks on financial markets: equilibria with credit rationing. Stiglitz-Weiss (1981). The role of collateral as an incentive device.
Part II
Banks can fail: history and institutions. A discussion on the emergence of a financial crisis: the causes, the consequences and policy issues related to a crisis. The trasmission mechanisms from the financial to the real sector: money view and credit view. The main features of the 2007-2009 financial crisis in comparison with past crises’ episodes: the causes, the transmission mechanisms, the consequences. Financial market regulation before and after the crisis of 2007-2009.
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