This is a core module, which focuses on the role of banks and financial intermediaries in the economy.

The aim of the module is to provide students with the economic, institutional and legal framework to understand the role and practice of financial intermediation in the global economy.

A     Knowledge and Understanding:

• describe the process of liquidity creation and be aware of the major changes and trends in the UK and international banking sector in particular the implications of securitisation
• describe the main risks relating to banking and be familiar with the main techniques of risk management
• describe and interpret the UK and European regulatory framework relating to the banking system

B     Intellectual Skills: 

• evaluate the functions, performance and behaviour of banks and other financial intermediaries using basic microeconomic theory
• use abstract reasoning with the aid of models to explain trends in banking
• analyse implications of legislation for the workings of the banking system

C     Discipline Specific Skills: 

• analyse the workings of banks and other financial intermediaries and be conversant with the basic functions and structures of retail, wholesale and international banking
• identify and differentiate between the various theories of the banking firm and theories of credit rationing and to interpret the trends in banking in relation to these theories
• manipulate data and make simple calculations relating to Value-at-Risk and to interpret the results

D     Transferable Skills: 

• communication of argument and analysis by written and oral means
• development of numerical and problem solving skills
• development of team working and presentational skills

There will be approximately 36 hours of lectures and 8 hours of classes. Students will be required to prepare and present class exercises during the year. Within the class each student is assigned to a study group. Each student is assigned a specific exercise for the following class. In the case of absence, another member of the study group is expected to present the exercise. The exercises are designed to test the student’s comprehension of the lecture material and background reading by addressing both analytical and descriptive components of the course.

Each study group is given a project that involves a 10-15000-word report and group and individual presentations at the end of the second semester. The project aims to develop written, oral and presentational skills within a team framework. The group project addresses a contemporary issue in international banking (e.g. securitisation). The report will describe the mechanism and current trends, apply economic reasoning to explain the trends, provide an assessment of future developments, and discuss the wider implications. The subject matter is covered in the lectures and references are provided but given the topical nature of the subject students are expected to supplement the readings with material from their own research. The research and writing of the project give students practice in developing their skills in literature search including non-standard sources such as WWW, selecting relevant information, writing a report to a professional standard, organising data and working within a team framework.

Indicative study hours:   200

The joint written project counts for 15%. Individual presentation and individual written contribution counts for 7.5% each. The formal exam counts for 60%.

The exam contains two sections and students are given 3 hours to complete the paper.

The first section contains short answer questions testing knowledge and comprehension. Students have to attempt four questions from the first section. The second section requires students to answer 2 essay type questions from a choice of 8. This part of the assessment tests the student’s knowledge and analytical skills.

Financial Intermediation and the Financial System, Banking Structures of Industrialised countries, Retail, Wholesale and International Banking, Models of the Banking Firm, Theories of Credit Rationing, Euromarkets and Eurocurrency banking, Securitisation, Theory of Regulation, Deregulation and Free Banking, Bank Efficiency and Structure Conduct Performance, Regulation of Banks, Risk Management in Banking, Economics of Central Banking.

Matthews, K & Thompson, J – The Economics of Banking, July 2005, John Wiley & Sons