[skip to content]

Department of Financial and Management Studies (DeFiMS)

Bank Regulation and Resolution of Banking Crises

Course Code:
Course Not Running 2016/17
Unit value:
Year of study:
Year 1

The course has been designed to introduce students to some of the key concepts, principles and practices in modern banking regulation and the resolution of modern banking crises. The literature on these subjects is vast so, in approaching the material, the course will be selective, focusing on a selection of key issues.

The main topics addressed in the course will be:

Detailed analysis of the elements and objective of bank regulation, with particular emphasis on the differences between the regulation of banks and the regulation of non-financial firms; the difficulties which arise from the complex structure of modern banks; the evolution of coordinated international rules, including Basel I, Basel II and Basel III; the relationship between commercial banking and investment banking, and the rise of shadow banking; bank supervision, including off-site and forward-looking supervision; the changing role of the lender of last resort before and after the 2008 crisis, with particular emphasis on the new methods of emergency liquidity assistance and their implications for the regulation of banks; issues associated with the insolvency of banks and implicit regulations; the main approaches to institutional structure for financial regulation; recent trends in regulatory structure and the role of Central Banks; the Fully Unified Approach to financial regulation; offshore financial centres; regulation, international institutions, standards and codes; proposals for international regulatory agencies; a World Financial Authority.

Objectives and learning outcomes of the course

On successful completion of this course a student will be able to:

  • Understand key objectives of bank regulation
  • Describe some of the linkages between regulation and regulatory practice, on the one hand; and banking crises on the other
  • Describe in detail how the 2007 banking crisis originated in the United States and United Kingdom, how it developed and how it escalated through the wider financial system
  • Understand the main early lessons the crisis has yielded, for strengthening banking and financial sector regulation
  • Explain the importance of bank capital adequacy and its relevance to the prudential regulation of banks
  • List some of the challenges arising from the original Basel I Capital Accord
  • Explain the key elements of the Basel II capital adequacy framework
  • Describe the major components of modern bank prudential supervision, using the financial soundness indicator and CAMELS framework
  • Distinguish between lender-of-last-resort support for liquidity and supporting the bank through investing new capital
  • Discuss the concept of ‘too big to fail’ and the difficulties related to it
  • Understand the various approaches to resolving failed banks and managing the consequences of their failure
  • Highlight the key principles supporting the establishment of a deposit insurance system
  • Distinguish between the various approaches used by countries, when structuring their regulatory institutions
  • Understand key changes in banking and financial markets, particularly since the mid-1990s, that have increased the prevalence of systemic risk
  • Understand the main arguments for and against the establishment of a global financial regulator

Method of assessment

Assessment for this course is by one tutorial presentation at 10%; an essay of 4,000 words at 30%; and an unseen written examination at 60% of the total grade

Suggested reading

Core reading:

  • Turner Adair et al. (2010) The Future of Finance: The LSE Report, London: London School of Economics.
  • Acharya Viral V, Thomas P Cooley, Matthew P Richardson and Ingo Walter (2011) Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance, Wiley Finance.

Additional reading:

  • Acharya Viral V, Thomas P Cooley, Matthew P Richardson and Ingo Walter (2011) Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance, Chapter 7 ‘Large Banks and the Volcker Rule’, New Jersey USA: Wiley Finance
  • Bakk-Simon K, S Borgioli, C Giron, H Hempell, A Maddaloni, F Recine and S Rosati (2012) ‘Shadow banking in the Euro area: an overview’, European Central Bank, Occasional Paper series No 133;
  • Financial Stability Board (2011) ‘Shadow Banking: Scoping the Issues’, a Background Note of the Financial Stability Board’, 12 April, Basel Switzerland, Website: www.financialstabilityboard.org/
  • International Swaps and Derivatives Association (2009) ‘ISDA Credit Derivatives Definitions’, New York: ISDA, Website www.isda.org/publications/
  • Peter Boone and Simon Johnson (2010) ‘Will the politics of global moral hazard sink us again?’ Chapter 10 of The Future of Finance: The LSE Report. Viral Acharya, Barry Adler, Matthew Richardson and Nouriel Roubini
  • Alexander K, R Dhumale and J Eatwell (2006) Global Governance of Financial Systems: The International Regulation of Systemic Risk, Oxford UK: Oxford University Press.
  • Barth J, G Caprio Jr and R Levine (2006) Rethinking Bank Regulation – Till Angels Govern, Chapter 3 Section 3.H.3, Cambridge UK: Cambridge University Press
  • Turner Adair (2012) ‘Shadow banking and financial instability’, London: Cass Business School, 14 March, Website: www.fsa.gov.uk/static/pubs/speeches/
  • Brown Elizabeth (2007) ‘E Pluribus Unum – Out of Many: Why the United States Needs a Single Financial Services Agency’, University of Miami Business Law Review, Fall/Winter.
  • Turner Adair (2012) ‘Securitisation, shadow banking and the value of financial innovation’, the Rostov Lecture on International Affairs, 19 April, Maryland USA: School of Advanced Studies, Johns Hopkins University.