Course Description

The Financial Crises of 2007-2009 and 2020 have highlighted the crucial role of financial markets and institutions in maintaining the health of our economy. This course explores the roles of banks and shadow banks in channeling funds from lenders to borrowers, the impact of asymmetric information, the dynamics of financial crises, and the role of central banks in conducting monetary policy and promoting  financial stability. The course combines theory and practice.

Prerequisites

Enrollment in MSF programs or FIN 5203.

Learning Objectives

1.    Evaluate a bank’s balance sheet and how banks manage key risks.

2.    Analyze the problems of adverse selection and moral hazard and how financial intermediaries mitigate them.

3.    Analyze the dynamics of financial crises, including runs, contagion, and leverage cycles.

4.    Assess the role of central banks in conducting monetary policy and promoting financial stability.

Course Materials

•    Required textbook: Money, Banking, and the Financial System (4th edition), Glenn Hubbard and Anthony Patrick O'Brien, Pearson.2

•    Case studies (in course packet)

•    Articles and videos (in Appendix A)

•    Lecture notes (slides) and other material on canvas. The notes contain some gaps that you need to fill in during the lecture.

Lecture Recordings

All lectures will be recorded and posted on Canvas under the Kaltura Media Gallery.

Course Grade

Your grade will be based on attendance (10%), participation (10%), quizzes (35%), and a final exam (45%). Final letter grades will be based on the overall distribution of final numeric scores, rather than a predetermined scale. Once the grade cutoffs are set, they will be applied uniformly to all students.

Attendance

To receive full attendance credit, you must attend every lecture in full and arrive on time. You may have up to one absence excused for any reason, provided that you: (i) watch the lecture recording, and (ii) attend office hours within one week ready to discuss key concepts from the missed class (e.g., explaining a slide or answering the case questions). Additional absences can be waived only with official documentation (e.g., a doctor’s note) or for religious observances. Late arrivals (at the beginning of class  or after a break) will count as partial attendance and will also affect your participation score below. Being more than 15 minutes late will count as an absence.

Participation

You are expected to actively engage in class, come prepared, and act professionally. Your participation score will be determined as follows.

Quizzes

There will be four quizzes due on 8/31, 9/8, 9/15, and 9/29, all before 11:59 PM. The quizzes are designed to encourage consistent engagement with the material. Each quiz will take up to 40 minutes, consist of multiple-choice questions (including “select all that apply”), and be administered online via  Canvas using the lockdown browser with camera on. All quizzes are closed book/notes and must be completed individually. No calculators, pen and paper, or other external aids are allowed. Quizzes will automatically close after the due date, except for the first quiz, which will remain open until 9/2.

Final Exam

The final exam will be cumulative. Note that the textbook, case studies, and articles/videos contain a lot of details, which I do not expect you to memorize. However, you need to remember and understand the main concepts that we will focus on during the lectures. The exam will be in person, and you will take it  on your laptop via the lockdown browser (plus camera). The format will be multiple-choice questions, including “select all that apply”. The only allowable materials are a basic calculator, one 8.5" × 11" sheet of notes (both sides), and blank paper for calculations.

Case Studies

Your course packet includes the following cases:

1. Lehman Brothers and Repo 105

2. Silicon Valley Bank: Gone in 36 Hours

3. Blackstone and the Sale of Citigroup's Loan Portfolio

For each case, I will give you questions that you will need to prepare for class discussion. However, you do not need to submit anything in writing.

Tentative Schedule

Notation key:

• V1, V2, …, V5 denote linked videos. For example, V3 refers to Video 3 in Appendix B. You can access it directly by clicking on V3.

• A1, A2 denote linked articles. For example, A1 refers to Article 1 in Appendix B. You can access it directly by clicking on A1.

• 1.2 denotes textbook Chapter 1, section 2. The brackets contain relevant page numbers.

• Readings marked with * indicate that only the abstract and introduction need to be skimmed.