Beruflich Dokumente
Kultur Dokumente
Course information
Code ECMRPFMB
Period 3
Timeslot A
Credits 7.5 ECTS
In master Economics and Law, Utrecht University School of Economics
Department USE/Finance and Financial Markets
Co-ordinator Dr. J.W.B. Bos (Jaap, j.w.b.bos@uu.nl)
Lecturer Dr. J.W.B. Bos (Jaap, j.w.b.bos@uu.nl)
Contents
In this course, we develop a theory of financial intermediation that allows us to explain the role
of banks in the economy, highlight structural weaknesses of the financial sector and justify and
interpret regulatory policy. We will study reasons for the existence of financial intermediaries,
including transaction costs, liquidity insurance and search costs. Building on this knowledge
we will study theoretical models of competition in the banking sector and risk management.
From there, we will study the choice of a regulatory framework, the role of a central bank and
moral hazard in deposit insurance. We will finish the theoretical part of the course with an
overview of recent developments in banking regulation (Basel II) and other financial regulation
(e.g. Financial Regulatory Framework for insurance firms).
In the second half of the course, we will use a sample data set to empirically test competitive
behavior in banking. We start with simple concentration measures, and measure transaction
costs (economies of scale). Then we compare price and non-price competition models. We
build several reduced-form competition models and estimate them with our sample data. In
addition, we review existing empirical evidence, such as spatial competition models.
Learning Goals
At the end of the course the student is able to:
{ Apply the concepts of the role of transaction costs, liquidity insurance, moral hazard and
adverse selection to financial markets and banking;
{ formally establish the link between (competition) theory and empirical tests;
{ explain the justification for, impact of and limitations of financial regulation;
{ measure and interpret the relationship between the production of the banking firm, the level
and type of competition on banking markets, and the stability and regulation of the financial
system;
{ explain policy implications of firm behavior on the basis of theoretical and empirical evidence;
{ interpret firm behavior by selecting the appropriate tools from a coherent analytical framework;
{ understand and critically evaluate current advancements in the literature;
{ carry out independent empirical research with a solid theoretical foundation;
{ communicate in English;
{ solve problems.
General format
There will be lectures and tutorials for discussing papers, capita selecta and exercises.
Lectures
Weekly lectures serve several goals. First, they aim to create a synthesis between the book
chapters, the articles, and the empirical exercises. Second, they serve to deepen the analyses
presented in the obligatory literature. Students are expected to have read and studied in
advance the relevant literature. Lecture slides will be made available through WebCT and - if
possible - before the lectures. Lecture notes are thereby also part of the compulsory material
for the written exam. Attendance at the lectures is voluntary. Three hours per lecture have
been scheduled.
Tutorials
In the weekly tutorial groups, we will cover parts of the obligatory literature. Students are
required to participate actively and will take turns in introducing a subject. The coordinator
will lead these meetings, but students are expected to prepare with the help of the information
in the course manual and additional information given during the lectures.
Assessment method
{ Student performance is tested by means of an open book final exam (60% of the final grade)
as well as by his/her performance on a paper assignment (40% of the final grade).
{ Performance with respect to the paper depends on the choice of problem statement, the
information collection, level of the empirical analysis, independence of the method of working;
general level of the discussion and the policy recommendations. The grade for the paper is
valid only for the current academic year.
{ The final, written exam consists of a number of essay questions. We will prepare for the
exam with a number of practice questions. It is an open book exam, based on the mandatory
literature and the lecture notes. All written material can be brought to the exam for actual
use.
{ In case a student fails the course and has a chance to pass by improving an insufficient grade
(< 6) for the paper, he/she has two options:
(a) Rewrite the paper. In this case, the grade for the final exam remains unaltered, and the
student passes up the chance to take part in a resit exam.
(b) Take the resit exam. In this case, the grade for the resit exam will be the final grade for
the course.
{ In case a student fails the course and has an insufficient grade for the final exam (< 6), the
student is entitled to a resit exam. The grade for this resit exam will be the final grade for
the course.
{ The resit exam consists of an oral exam of one hour. All written material can be brought to
the resit exam for actual use.
Course materials
The course makes use of selected chapters from two books and a manuscipt (co-authored by
the coordinator). The latter will be available from the coordinator. Datasets, instruction files
and handouts will also be made available through WebCT by the coordinator.
{ Bikker, J.A. and J.W.B. Bos (2005). Bank Performance: a theoretical and empirical frame-
work for the analysis of profitability, competition and efficiency, manuscript;
{ Dewatripoint, M. and J. Tirole (1995). The Prudential Regulation of Banks. Cambridge,
Massachusetts, USA: MIT Press. In reader.
{ Freixas, X, J-C. Rochet (1998). Microeconomics of Banking, Cambridge, Massachusetts,
USA: MIT Press. In reader.
{ Basel Committee on Banking Supervision (2001), "The New Basel Capital Ac-
cord: an explanatory note," Bank for International Settlements Note (available from
http://www.bis.org/publ/bcbsca01.pdf).
{ Berger, A.N., R.S. Demsetz and P.E. Strahan, 1999. "The Consolidation of the Financial
Services Industry: Causes, Consequences, and Implications for the Future," Journal of Banking
& Finance, 23 (2-4), February, pp. 135-194.
{ Bhattacharya, S. and A.V. Thakor (1993), "Contemporary banking theory," Journal of financial
intermediation, 3 (1), 2-50.
{ Bhattacharya, S., A.W.A. Boot and A.V. Thakor (1998), "The Economics of banking regula-
tion," Journal of Money, Credit and Banking, 30 (4) 745-770.
{ Bikker, J.A. and K. Haaf (2002), "Competition, concentration and their relationship: An
empirical analysis of the banking industry," Journal of Banking & Finance, 26(11), 2191-
2214.
Course itinerary
On the following pages, you find a week-by-week overview of the course.
Lecture 2: Transformation
Lecture 8: Consolidation
Tutorial 8: Mergers