[skip to content]

Centre for Financial and Management Studies (CeFiMS)

Bank Regulation & Resolution of Banking Crises

Course Code:
C356
Unit value:

Introduction

Bank crises occur frequently in many countries and across many time periods. Many go beyond the distress of individual banks and have systemic effects, threatening the banking system as a whole. Since the nineteenth century governments and central banks have developed increasingly sophisticated methods to regulate banks in order to minimize the risk of bank distress and intervention tools to mitigate its effect. Since crises recur, as in the USA and United Kingdom in 2007, they motivate heightened discussion of the merits of regulation and intervention and their design. In this course you study technical aspects of bank regulation, supervision, and intervention to resolve crises. It relates the techniques to fundamental principles and to examples of countries’ experience.

Resources

Study Guide

You will receive a looseleaf binder containing eight 'course units'. The units are carefully structured to provide the main teaching, defining and exploring the main concepts and issues, locating these within current debate and introducing and linking the further assigned readings. The unit files are also available to download from the Online Study Centre.

Reports & Textbooks
  • The Turner Review - A regulatory response to the global banking crisis (2009), Financial Services Authority
  • Enoch, Marston and Taylor (2002) Building Strong Banks Through Surveillance and Resolution, IMF, Washington DC.
  • Alexander, K., Dhumale, R and Eatwell, J (2006) Global Governance of Financial Systems - The International Regulation of Systemic Risk, Oxford University Press
Readings

You will receive a selection of core readings, in the form of academic articles on bank regulation and the resolution of bank crises provided in a course reader.

Online Study Centre

You will have access to the OSC, which is a web-accessed learning environment. Via the OSC, you can communicate with your assigned academic tutor, administrators and other students on the course using discussion forums. The OSC also provides access to the course Study Guide and assignments, as well as a selection of electronic journals available on the University of London Online Library.

Objectives and learning outcomes of the course

By the end of this course you will be able to:

  • Distinguish bank regulation from bank supervision
  • Evaluate the arguments for and against regulation
  • Understand the links and risk distribution between banks, other financial institutions, and financial markets
  • Appraise various methods of regulation and supervision
  • Understand the Basel Core Principles of bank supervision
  • Use CAMELS indicators to assess banks’ soundness
  • Evaluate deposit insurance schemes
  • Understand the changing nature of lender of last resort facilities

Scope and syllabus

Course Units
Unit 1: Principles of Banking Regulation
  • 1.1 Some Key Objectives of Banking Regulation
  • 1.2 Banking Regulation and Banking Crises – 3 Conceptually Distinct Periods
  • 1.3 The US Sub-Prime Mortgage Crisis
  • 1.4 The 2007 Financial Crisis: Key Implications for Banking Regulation
  • 1.5 Broad Regulatory Issues Raised by the Recent Crisis
  • 1.6 Regulating Financial Institutions
  • 1.7 Regulating Financial Markets
  • 1.8 Summarising the Regulatory Challenges
  • 1.9 Conclusion
Unit 2: Banking Supervision & Regulation
  • 2.1 Key Phases in Bank Regulation
  • 2.2 Regulating Bank Capital Adequacy
  • 2.3 Background – The 1988 Basel Accord
  • 2.4 Limitations of the 1988 Basel Accord
  • 2.5 The Basel II Accord
  • 2.6 Summarising the Key Changes from Basel I to Basel II
  • 2.7 Conclusion
Unit 3: The Prudential Supervision of Banks
  • 3.1 The Prudential Supervisions of Banks
  • 3.2 Financial Soundness Indicators and CAMELS Framework
  • 3.3 Banking Supervision in Practice
  • 3.4 Basel Core Principles for Effective Banking Supervision
  • 3.5 Conclusion
Unit 4: Banking Crises: Weak Banks and Lender of Last Resort Support
  • 4.1 Introduction
  • 4.2 The Supervision of Weak Banks
  • 4.3 Lender of Last Resort Facilities
  • 4.4 LOLR to Illiquid But Solvent Banks
  • 4.5 LOLR to Illiquid, Possible Insolvent Banks
  • 4.6 Recent Development Modifying Thorton & Bagehot’s Principles
  • 4.7 Conclusion
Unit 5: Restructuring Failed Banks and Protecting Depositors
  • 5.1 Resolving Bank Failures
  • 5.2 Resolving Individual Banks
  • 5.3 Resolving Systemic Banking Crises
  • 5.4 Deposit Insurance
  • 5.5 Recent Trends in Deposit Insurance
  • 5.6 Objectives of Deposit Insurance
  • 5.7 Key Elements in the Design of an Effective Deposit Insurance System
  • 5.8 Key Criticisms of Deposit Insurance
  • 5.9 Conclusion
Unit 6: The Institutional Structure of Financial Regulation
  • 6.1 Approaches to Institutional Structure for Financial Regulation
  • 6.2 Why is Regulatory Structure Important?
  • 6.3 Recent Trends in Regulatory Structure
  • 6.4 Regulatory Structure and the Role of the Central Bank
  • 6.5 The Fully Unified Approach to Financial Sector Supervision
  • 6.6 Two Contrasting Models of Financial Regulation
  • 6.7 The US Regulatory System and Proposals for its Reform
  • 6.8 The UK’s Financial Services Authority – Lessons from the 2007/2008 Financial Crisis
  • 6.9 Conclusion
Unit 7: Regulation, Supervision and Financial Stability
  • 7.1 Financial Stability and Systemic Risk
  • 7.2 Is Modern Regulation Effective? Some Initial Considerations
  • 7.3 Recent Developments in Financial Markets
  • 7.4 Effectiveness in Achieving Prudential Objectives
  • 7.5 Effectiveness in Managing Systemic Risk
  • 7.6 Some Policy and Institutional Responses to the 2007 Financial Crisis
  • 7.7 Conclusion
Unit 8: Issues in International Supervision and Regulation
  • 8.1 Offshore Financial Centres
  • 8.2 Regulation, International Institutions and Standards & Codes
  • 8.3 Proposals for International Regulatory Agencies
  • 8.4 A World Financial Authority
  • 8.5 Conclusion

Method of assessment

You will complete two assignments, which will be marked by your course tutor. Assignments are each worth 15% of your total mark. You will be expected to submit your first assignment by the Tuesday of Week 5, and the second assignment at the end of the course, on the Tuesday after Week 8. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Online Study Centre. You will also sit a three-hour examination on a specified date in October, worth 70% of your total mark. An up-to-date timetable of examinations is published in April of each year.