Course description

Created by / on: CK 30/01/2016

Master of Science in Banking
Modified by /on : DM - 15/02/2017 and Finance
Approved by / on : FT&PT Programme
Z:\11. Secrtariat formations\Descriptifs cours-modules-CVs\MSBF\2015-2016\FDEF_CD_MSBF_FT\H4. FDEF_CD_MSBF-FT&PT_ Systemic
Risk and Macro-Prudential Supervision_DM_20170112

Title H. Risk Management Stream

Module
Code MSBF2/16

Title H4. Systemic Risk and Macro-Prudential Supervision

Course
Code MSBF2-45

1. COURSE DETAILS
Language of teaching English

Number of units 20

Contact hours 15
1
Workload and its composition 60
Hours spent on self-study
45
and examinations

Course credits (ECTS) 2 2

Pre-requisite(s) 3 None

Study director Thorsten LEHNERT

Course leader(s) Alexander GUEMBEL

Frequency of offer 4 Yearly

Semester course
Organisation
Block course

Obligatory course
Form of course
Elective course

Yes
Tutorials
No

Tutorials leader(s)

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2. COURSE CONTENT
This course will review risk management from the point of view of the financial system and the wider real economy,
including regulatory objectives since the onset of the recent financial crisis. Contagion mechanisms creating systemic
risk will be reviewed. The course will also study recent regulatory policy initiatives and supervisory best practices that
seek to reduce or contain these, including Financial Stability Board initiatives and related Basel Committee policy
recommendations.
The focus of this course will be on macroprudential regulation, i.e., regulation that is aimed at limiting the systemic
impact of shocks to the financial system. There is some overlap with microprudential regulation, which is aimed at
reducing the likelihood of an individual bank failure. Since microprudential regulation is covered elsewhere in the
programme (see the course Risk Management in Financial Institutions), it will not be discussed again here.
Although we will discuss recent developments in regulation, the aim of the course goes beyond mere description of
existing regulation and regulatory proposals. The aim of the course is to provide you with an understanding of the
economic mechanisms underlying contagion. This will enable you to assess critically whether and how future policy
proposals can be expected to remedy existing market failures.

3. TEACHING AND LEARNING METHODS 5

The course will proceed through a mix of lectures, group work and presentation and discussion of your group work.
You should form groups of up to 5 students. I will discuss during the lectures the details of the work you are expected
to do in groups. The course also requires self study.

4. ASSESSMENT
The final exam will consist of a series of short questions, testing
x Written Exam 50%
your grasp of the material covered during the course.
Mid-term exam

Oral Exam

Seminar paper
Two brief presentations of group work you have done during
break-out sessions, plus a powerpoint presentation of no more
x Presentation 35%
than 30 slides which will be deliverable on the 25 April 2017
(before midnight) by e-mail.
In evaluating class participation I will take into account class
x Other: class participation
15% presence and contributions to discussion (both in terms of
quantity and quality).
Case

5. COURSE OBJECTIVES / EXPECTED LEARNING OUTCOMES

On completion of the course unit successful students will be able to:
Gain an understanding of the economic mechanisms underlying contagion.
Describe key macroprudential policy tools.
Assess critically whether and how future policy proposals can be expected to remedy existing market failures.

6. LITERATURE 6
There is no specific reading required before the beginning of the course. We will use the following case study as a
basis of an assignment that will be graded. You will receive instructions on the assignment during class, but should
have read the case beforehand.

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 - Minor and Persico, 2012, The Volcker Rule: Financial Crises, Bailouts and the Need for Financial Regulation,
Kellogg School of Management, Northwestern University, case number 5-412-753.

Below are references, which will be helpful in preparing the class presentations and as general references. All the
reading is freely available on the internet.
A concise introduction to the economic mechanisms of contagion as well as an overview of policy responses can be
found in:
- Claessens, S., 2014, An Overview of Macroprudential Policy Tools, IMF Working Paper, WP/14/214.

The role of shadow banking and proposals for its regulation are discussed in:
- Hanson, Scharfstein and Sunderam, 2014, An Evaluation of Money Market Fund Reform Proposals, Harvard
University.

- FSB Progress Report, 2015 Tranforming Shadow Banking into Resilient Market-based Finance, Progress
report.

- Gorton, G., and A. Metrick, 2010, Regulating the Shadow Banking System, Brookings Papers on Economic
Activity, 261 297.

The following papers propose ways to measure systemic risk in banking institutions:
- Acharya, V. and S. Steffen, 2012, Analyzing Systemic Risk of the European Banking Sector, in Handbook on
Systemic Risk, editors J.-P. Fouque and J. Langsam, Cambridge University Press.

- Schoenmaker and Wagner, 2012, Cross Border Banking in Europe and Financial Stability.

- Gong and Wagner, 2016, Systemic risk taking at banks: evidence from the pricing of syndicated loans.

- BCBS, 2011, Global systemically important banks: assessment methodology and additional loss absorbency
requirement.

- Upper, C. 2011. Simulation methods to assess the danger of contagion in interbank markets, Journal of
Financial Stability

- Drehmann and Tarashev, 2013, Measuring the systemic importance of interconnected banks Journal of
Financial Intermediation.

Capital buffers and how they should change over the business cycle is the topic of the following papers:
- BCBS, 2011, Basle III: A global regulatory framework for more resilient banks and banking systems.

- BCBS, 2010, Guidance for national authorities operating the countercyclical capital buffer.

- Repullo R and J. Saurina, 2011, The counter-cyclical capital buffer of Basle III: A critical assessment. CEMFI
working paper.

Further regulation in the form of liquidity requirements is discussed in:

- BCBS, 2013, Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring.

- Brunnermeier, Gorton and Krishnamurthy, 2012, Liquidity Mismatch Measurement.

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A critical appraisal of the short-comings of financial supervision before the crisis and how to fix it are presented in:
- Financial Stability Board, 2014, Supervisory Intensity and Effectiveness, Progress report.

1
Workload indicates the time students typically need to complete all learning activities required to achieve expected learning
outcomes. It embraces:
Contact hours (lectures, seminars, training exercises),
Hours spent on self-study and examinations.
2
ECTS-Credits: The number of credits is based on the student workload. One credit corresponds to 25 to 30 hours of work.
3
Prerequisites: The conditions of participation have to be defined. Are specific knowledge and skills required for a successful
participation?
4
Frequency: Is the course offered each academic year, each semester, or only in larger intervals?
5
Teaching and learning methods: Description of the teaching and learning methodologies e.g. lectures, seminars, exercises,
project work, internships, and self-study.
6
Literature: Compulsory and recommended literature.

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