Bank Regulation & Resolution of Banking Crises
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The recent banking crisis has motivated heightened discussion of the merits of bank regulations used to minimise the risk of bank distress and intervention tools to mitigate its effects. In this module you will study technical aspects of bank regulation, supervision and intervention to resolve crises.
You will receive a looseleaf binder containing eight 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 Virtual Learning Environment.
Reports & Textbooks
Acharya, V.V., T.F. Cooley, M.P. Richardson, & I. Walter (eds.) (2011) Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance, Wiley
Turner, A., et al. (2010) The Future of Finance: The LSE Report, The London School of Economics and Political Science
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 module reader.
Virtual Learning Environment
You will have access to the VLE, which is a web-accessed study centre. Via the VLE, you can communicate with your assigned academic tutor, administrators and other students on the module using discussion forums. The VLE also provides access to the module 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
Unit 1: Elements and Objectives of Bank Regulation
- 1.1 Introduction
- 1.2 Bank Failures and Banking Crises
- 1.3 Is Bank Regulation Different from Regulating Non-Financial Firms?
- 1.4 Prudential Regulation for a Basic Bank
- 1.5 What is the Purpose of Prudential Regulation?
- 1.6 From the Simple Basic Model toward Actual, Complex Banks
- 1.7 Case Study: Banking in the pre-2007 Financial Boom and its 2008 Bust – Regulators’ Response
- 1.8 Conclusion
Unit 2: International Rules for Prudential Regulation
- 2.1 Introduction – Evolution of Coordinated International Rules
- 2.2 Basel I
- 2.3 Basel II
- 2.4 Basel III
- 2.6 Two Case Studies
- 2.7 Conclusion
Unit 3: Financial Stability, Bank Structure and Shadow Banking
- 3.1 Introduction
- 3.2 Commercial Banking and Investment Banking – Joined or Separate?
- 3.3 Shadow Banking – Good for the Banking System or Too Shadowy?
- 3.4 Conclusion
Unit 4: Supervising the Banks and Foreseeing Problems Contents
- 4.1 Introduction
- 4.2 CAMELS Ratings
- 4.3 Off-Site and Forward-Looking Supervision
- 4.4 Conclusion
Unit 5: Lender of Last Resort – Before and After the 2008 Crisis Contents
- 5.1 Introduction
- 5.2 LOLR – Its Origins and Classic Character
- 5.3 Conventional Practice and Perspectives
- 5.4 The Conventional Practices of Lenders of Last Resort
- 5.5 The 2008 Crisis and New Methods of Emergency Liquidity Assistance
Unit 6: Dealing with Bank Failure: ‘Too Big to Fail’ and New Resolution Regimes Contents
- 6.1 Introduction
- 6.2 What is Special about the Insolvency of Banks?
- 6.3 ‘Too Big to Fail’
- 6.4 Case study: TBTF, Implicit Guarantees and Regulation, Lessons of the 2008 Crisis
- 6.5 Living Wills
- 6.6 Conclusion: Bank Resolution, Lessons of the Financial Crisis References and Websites
Unit 7: The Institutional Structure of Financial Regulation Contents
- 7.1 Introduction
- 7.2 Approaches to Institutional Structure for Financial Regulation
- 7.3 Why is Regulatory Structure Important?
- 7.4 Recent Trends in Regulatory Structure
- 7.5 Regulatory Structure and the Role of the Central Bank
- 7.6 The Fully Unified Approach to Financial Sector Supervision
- 7.7 Two Contrasting Models of Financial Regulation
- 7.8 The UK’s Financial Services Authority – Lessons from the 2008 Financial Crisis
- 7.9 Conclusion
Unit 8: Issues in International Supervision and Regulation Contents
- 8.1 Offshore Financial Centres
- 8.2 Regulation, International Institutions, Standards and Codes
- 8.3 Proposals for International Regulatory Agencies
- 8.4 A World Financial Authority
Method of assessment
Students are individually assigned an academic tutor for the duration of the module, with whom you can discuss academic queries at regular intervals during the study session.
You are required to complete two Assignments for this module, which will be marked by your 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 module, on the Tuesday after Week 8. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Virtual Learning Environment.
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 on the website in April each year.