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Module Title: Financial Crises and Regulation

Module Director: Professor Jonathan Williams

Available Routes:

Core Module : Super Accelerated Route

Elective Module : Full Programme and Accelerated Route

Module Overview:

This module considers the phenomenon of financial and banking crises and the multifarious efforts deployed to reduce, alleviate and limit the occurrence of these events. This module will give students an in-depth knowledge of the history of bank crises, forms of prudential regulation used to prevent such crises and how macro-economics and money policy can be employed to alleviate these circumstances. The module considers both theory and cases, from both contemporary and historical perspectives to examine the formation of crises conditions, reflect on the multitude of responses to these conditions and the diversity of theoretical explanations underlying the academic and policy debates surround financial and banking crises. The module is broken into three sections considering first, financial crises, which are discussed in lectures one, two and three. Secondly, we examine the rationale for and critically evaluate many of the different tools of prudential regulation and how these may have helped and also contributed to the scale and frequency of crises. These are discussed in lectures four, five and six, considering why and how we regulate, bank capital ratios and the institutional arrangement of regulation. Lastly, in the third section we consider the macroeconomic implications of banking and financial crises and how monetary policy tools may be employed to reduce the influence of these events. In lecture seven, conventional monetary policy responses to financial crisis are elaborated and in lecture eight we review more heterodox policies and two case studies of financial crisis has influence macro-economic decision making.

Module Aims & Objectives:

On completing this module students will:

  • Understand the main theoretical models purporting to explain the development and triggering of financial and banking crises.
  • Understand the role of monetary policy, bank supervision and regulation, in mitigating, responding to and even exacerbating financial crises.
  • Develop a critical comprehension of the different policy options for dealing with financial crises.

Key Text:

The Fundamental Principles of Financial Regulation (Geneva Reports on the World Economy) Brunnermeier, M; Crockett, A; Goodhart, C; Persaud, A.P. and Shin, H.  - Centre for Economic Policy and Research

Means of Assessment:

This module is assessed by means of a single mini project of 3,500 words in length

Unit One: Financial and Banking Crises

In this first lecture we start the discussion of financial and banking crisis through considering why banks are important, the frequency of financial crises, the many different symptoms and features of financial and banking crisis and lastly the costs of financial crisis for the economy and the society more generally. The second and third lectures in this first section of the reader develop this discussion through examining the causes of financial crisis in lecture 2 and how banks are bailed out after financial crisis is considered in lecture 3.

Unit Two: Prudential Regulation

In section two, we examine the prudential regulation of banks. Through lectures four, five and six this discussion considers why and how banks are regulated, capital ratios and how regulation and regulators should be institutionally arranged and organised, respectively. In lecture four, we examine why financial institutions and particularly banks are regulated. In lecture five, we discuss the use and application of capital ratios and different regulatory regimes employed to ensure banks hold sufficient capital. In Lecture six we consider the different ways in which financial regulation can be organised and arranged, and critically the structural form of the regulator and the role of the central bank within a system of financial regulation.

Unit Three: Macro-economic responses to financial crisis

In this section we consider macro-economic influences and responses on and to financial crises in chapters 7 and 8. In lecture seven, we examine how conventional tools of monetary policy can be used to reduce the economic effects of banking crises. In lecture eight we critically discuss other more heterodox tools of monetary policy, such as quantitative easing and alternatives to monetary policy responses. The chapter is concluded with by contrasting the policy responses to the banking crises on the early 1930s and the subsequent great depression to the more recent great financial crisis in 2007-08.

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