DEPARTAMENT ....... :
PROGRAM .................. :
COURSE....................... :
PROFESSOR ............... :
DAY/HOUR ................. :
Accounting and Finance (CFC)
CMCD/Winter School
Banking
Rafael F. Schiozer e Richard Saito
Daily 9:00 to 13:00, except 1st class (from 2 PM to 6 PM) and 6, 7 and 8, July (from 7:00 to 10:40)
Winter / 2015
SYLLABUS
OBJECTIVES AND CONTENTS
This courses aims at covering the banking literature as it relates to theory, empirical studies, and regulations. The first part discusses the
microeconomic foundations of the banking firm. The second part is devoted to deposit insurance, and regulations. The third part
presents the interactions of economic policy and banking (macrofinance), and the fourth part focuses on empirical work in Industrial
Organization and Banking.
I expect that students will be better prepared to do (especially empirical) research in banking and banking-related topics after taking this
course. I also expect students to develop their critical thinking and learn to make academic presentations in a professional manner,
which is fundamental to researchers.
This course requires a lot of reading from the students. Be prepared to have a full afternoon of reading and preparing presentations
every day.
FORMAT
Half lectures by the professors, half seminar-type. The course will be taught in English. The students are encouraged to use English
throughout the course, but they will be allowed to do presentations, quizzes and the exam in Portuguese
In the lectures, we will be covering the basics of banking. Topics will include a basic understanding of the balance sheets of banks,
regulatory capital and other aspects relating to financial regulation. We will also specifically be covering aspects on empirical Finance*.
We may as well introduce or conclude the topic of each session with a short lecture on aspects related to the specific papers being
studied.
Presentation and discussion of papers by the students: the success of this course depends fundamentally on the effort and
preparation of the students for the classes. First, by carefully reading the book chapters and papers. Second, by bringing relevant
comments on them. Third, by actively participating in the discussion of the topics. I expect you to not only mention the assigned papers,
but also the broader Finance literature relating to the subject being studied.
* This is not a course about empirical Finance. However, I will devote good part of the lectures talking about empirical identification issues
concerning the banking literature. Course readings will expose you to the empirical methods being used in classical and recent papers.
Seeing how the tools are used by top researchers is often very useful in helping students understand the tools.
ASSESSMENT CRITERIA
Presentation / discussion of papers:
Half-page handouts:
Participation during discussions:
Quizzes:
Final Exam:
20%
10%
15%
20%
35%
The quizzes and the final exam will cover both the papers we will discuss and the textbook material indicated below.
EXPECTED BACKGROUND (THESE ARE NOT FORMAL PREREQUISITES)
- Expected utility theory, contingent claim analysis, informational asymmetry;
- Basic corporate finance;
- Basic econometrics.
COURSE SCHEDULE AND READING LIST
1)
Students are expected to read the book chapters before the start of the course.
Each session will cover 2 papers, that will be discussed in the second half of each class. Students will form groups of
their own choosing*, and we will assign each group one paper per day. The assignment will be made in the first day of class.
One student will present the discussions prepared by his/her group**. Each group will need to make a 20-30 minute
PowerPoint presentation that discusses the paper, and each presentation will be followed by in-class discussion. The purpose
of the assignment is twofold: (1) Presentations are one key part of the work of a researcher. And (2), this will help you think
critically about the papers. Each group must also type up a summary of the central idea of the paper (3-5 lines), and one or two
2)
critiques (1 or 2 short paragraphs) of the paper they have been assigned to. We call these half-page handouts. Each group will
state the critiques at the start of the discussion.
*The number of students per group will depend on the number of students enrolled for the course.
** We may randomly choose someone from the group to answer a specific question about the paper. If the answer is poor, this will damage the grade for the
whole group. This is done to reduce moral hazard and avoid someone from the group to free-ride.
Guidelines for a good discussion (you do not have to strictly follow this, but it may help you in preparing your presentation):
- Briefly describe what the papers does and what it finds (or predicts, if theoretical);
- Make your point about the assumptions and/or identification strategy;
- Suggest improvements;
- Identify eventual gaps or defects. Be critical. You may use your own judgement or the literature that followed on the
subject. In this case, make explicit mention to the papers you are referring to.
Course schedule (tentative and subject to change)
Session Professor
Date
Topics
Papers
Chapters [pre-course readings]
29/jun Course presentation
Gorton and Winton (2003)
Ch. 1
2 PM
Why are banks special?
[pre-course reading]
30/jun The monitoring role of banks and the Diamond (1984)
2
Schiozer
Ch. 2
9 AM liquidity transformation role
Kashyap, Rajan and Stein (2000)
01/jul Deposit insurance, bank runs and liquidity Diamond and Dybvig (1983),
3
Schiozer
Ch. 7
9AM
hoarding
Calomiris and Mason (2003)
02/jul Deposit insurance, bank runs and liquidity Gropp, Hakenes, and Schnabel (2011)
4
Schiozer
Ch. 19
9AM
hoarding (cont.)
Wermers (2011)
03/jul Regulation, moral hazard, capital Pereira and Saito (2015)
5
Schiozer
Ch. 20
9AM
requirements
Kashyap and Stein (2004)
06/jul Regulation, moral hazard, capital Dam and Koetter (2014)
6
Saito
Ch. 20
7AM
requirements (cont.)
Oliveira, Schiozer and Barros (2015)
07/jul
Yoshida and Schiozer (2015)
7
Saito
Capital and lending
Ch. 11
7AM
Gambacorta and Mistrulli (2004)
08/jul Monetary policy and the bank lending Kashyap and Stein (2000)
8
Saito
Ch. 17
7AM
channel
Campello (2002)
13/jul Relationship banking
Petersen and Rajan (2002)
9
Schiozer
9AM
Course wrap-up
Degryse and Ongena (2005)
14/jul
10 Schiozer
FINAL EXAM
9AM
Notes: 1) The first class is from 2 PM to 6 PM. 6, 7 and 8, July are from 7 AM to 10:40 AM. All other classes are from 9 AM to 1 PM; 2) There is no
class on July 9 and 10 (State holiday)
1
Schiozer
Book:
Saunders, Anthony and Cornett, Marcia, Financial Institutions Management: A Risk management Approach, 8th edition, 2013
[earlier versions of the book are also OK]
Recommended chapters are pre-course readings
Papers:
Gorton, G., and A.Winton, “Financial Intermedation," Chapter 8 in Handbook of the Economics of Finance (Vol 1A), G.M. Constantinides,
G.M, Harris, M. and Sutltz, R.M. (2003).
Diamond, D. “Financial Intermediation and Delegated Monitoring," Review of Economic Studies, 51 (1984), 394-414.
Kashyap, A. K., R.Rajan, and J.C. Stein, Banks as Liquidity Providers: An Explanation for the CoExistence of Lending and Deposit Taking,"
Journal of Finance, 57 (2000), 33-73.
Diamond, Douglas W., Dybvig, Philip H. (1983). Bank runs, deposit insurance, and liquidity. Journal of Political Economic, 91:401-419.
Gropp, R., Hakenes, H., Schnabel, I., 2011. Competition, Risk-Shifting, and Public Bail-out Policies. Review of Financial Studies 24, 6, 20842120.
Calomiris Charles W., Mason, Joseph R. (2003). Fundamentals, panics, and bank distress during the depression. American Economic Review
93:1615–1647.
Dam, L., Koetter, M., 2014. Bank bailouts and moral hazard: empirical evidence from Germany. Review of Financial Studies.
Pereira, J.A.C. and Saito, R., How Do Capital Buffers Respond To Basel? An Empirical Analysis Of The Brazilian Banking System, 2015,
working paper.
Gambacorta, L. and Mistrulli, Does bank capital affect lending behavior? Journal of Financial Intermediation, Volume 13, Issue 4, October
2004, Pages 436-457
Oliveira, Raquel. F., Schiozer, Rafael. F., Barros, Lucas. A. B. de C.. Depositors ‘Perception of “Too Big To Fail”. Review of Finance, 2015.
Kashyap, Anil K.; Stein Jeremy C. What Do a Million Observations on Banks Say About the Transmission of Monetary Policy?, The American
Economic Rewiew, v. 90, n. 3, p. 407-428, 2000.
Campello, Murillo, 2002. “Internal Capital Markets in Financial Conglomerates: Evidence from Small Bank Responses to Monetary Policy,”
Journal of Finance, 57, 2773—2805.
Degryse, H. and S. Ongena, Distance, Lending Relationships and Competition, Journal of Finance, 60 (2005), 231-266.
Petersen, M. and R. Rajan, Does Distance Still Matter?" Journal of Finance, 57 (2002), 2533-2570.
Other papers (non mandatory readings)
Boyd, John H. and David E. Runkle, 1993, Size and Performance of Banking Firms: Testing the Predictions of Theory, Journal of Monetary
Economics, 31(1), 47–67.
Joel F. Houston, Christopher James, Do bank internal capital markets promote lending?, Journal of Banking & Finance, Volume 22, Issues 6–8,
August 1998, Pages 899-918
Ralph de Haas, Iman van Lelyveld, Internal capital markets and lending by multinational bank subsidiaries, Journal of Financial Intermediation,
Volume 19, Issue 1, January 2010, Pages 1-25.
Other Book on the subject
Allen, F., and D.Gale, Understanding Financial Crises, Oxford University Press, (2009).
Bhattacharya, S., Boot, A. and A.Thakor, Credit, Intermediation, and the Macroeconomy, Oxford University Press, (2004).
Boot, A. and A.Thakor, Handbook of Financial Intermediation and Banking, Elsevier, (2008).
Dewatripont, M., and J.Tirole, The Prudential Regulation of Banks," MIT Press, (1994).
Freixas, X., and J.C.Rochet, Microeconomics of Banking," MIT Press, 2nd edition (2008).