Financial Markets and Institutions 28C00800 Wrap-up, feedback and exam preparation

Transcription

1 Financial Markets and Institutions 28C00800 Wrap-up, feedback and exam preparation Vesa Puttonen Fall

2 Course objectives Understanding the workings of financial markets and institutions Commercial banks, central banks, investment banks Funds, insurance companies Which economic phenomena create the observed structure and design of markets, institutions and products Understanding various facets of this and previous crises Crises in developed and emerging markets Regulation Linking together arguments, understanding current debates and challenges; almost no math / equations We will have in-class discussions From the first lectures 2

3 Introduction to the financial system Why study financial markets and institutions? Finnish financial markets Need for a fix From the first lectures 3

4 Financial institutions and financial crisis First, financial institutions and other investors were excessively optimistic about asset prices and risk, lulled by a low interest rate environment and changes in the financial landscape that masked the extent of leverage and made these risks more opaque and interconnected. Second, neither market oversight nor prudential supervision were able to stem excessive risk-taking or take into account the interconnectedness of the activities of regulated and non-regulated institutions and markets. This was due in part to fragmented regulatory structures and legal constraints on information sharing. From the first lectures 4

5 Financial institutions and financial crisis Third, once the crisis hit, weaknesses and differences in national and international approaches to dealing with crossborder bank resolution and bankruptcy came to a head. And finally, the crisis drove home the limitations of existing mechanisms for central bank liquidity support and the need for significant changes in practice on this front. Lessons of the Financial Crisis for Future Regulation of Financial Institutions and Markets and for Liquidity Management International Monetary Fund, 2009 From the first lectures 5

6 The global financial crisis The origins and timeline of the 2007 global financial crisis Why did nobody notice it? How do we get out of it? 6

7 Fixing the financial system Fixing the system in Europe Stress tests European Banking Union European Capital Markets Union 7

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9 Fundamentals of financial institutions and commercial banking Why do financial institutions exist? Bank performance Bank balance sheets Risks in banking Why are bank balance sheets, performance and risks so hard to evaluate? Term paper (Deutsche Bank and Monte dei Paschi) Case Stress Testing European Banks 9

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11 Bloomberg, Dec 4,

12 Financial Times 12

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14 Financial Times, Dec 7,

15 Central banks Introduction to central banks Eurosystem: National Central Banks and ECB Fed: Federal Reserve Banks, BoG and FOMC Central banks tools Lending to banks Open market operations Reserve requirements The real effects of these tools Central banks goals Price stability Other goals Central banks response to crises 15

16 European Stocks in Biggest Rally Since U.S. Election Before ECB (Bloomberg, Dec 7, 2016) 16

17 Financial regulation Concepts of regulation Why do we need regulation? Who regulates? What do they regulate (banking)? What are the costs of regulation? 17

18 Financial regulation Summary - Why regulation: externalities & asymmetric information - Banking regulation: structure, liquidity, transparency, capital adequacy (new Basel requirements & minimums) - Costs of regulation: moral hazard, compliance costs, barriers to entry - European Banking Union moving ahead (but depositary guarantee system slowly) 18

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20 Shadow banking Development of the shadow banking system Investment banks Mutual funds Exchange-traded funds Hedge funds Venture capital & private equity funds 20

21 Financial innovation Financial innovation: Timeline Respond to changes in demand, supply and regulation Financial innovation and decline in traditional banking The Fintech Revolution 21

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23 Insurance companies Basics of insurance Agency problems in insurance Insurance management Challenges in insurance Pensions Finnish pension system 23

24 Next 24

25 Exam Tuesday, December 13, 2016 at 9:00-12:00 Setup Short questions 4 questions with 5 points each (not more than 150 words per question) ; max. 20 points True-false-questions Max. 20 points (correct answer: +4p, wrong answer: -2p) Longer essay 1 question with 10 points (not more than 450 words) Second exam on Monday, February 20, 2017 Registrate to the exam! 25

26 Course materials On MyCourses web page Lecture slides Guest lecture slides (Jussi Laitinen) Reading list (compulsory reading) Term paper and Case Course book not required in the exam but you may use it as supplementary material Mishkin, F.S. and S.G. Eakins (2016/2012): Financial Markets and Institutions, Pearson (global edition) Chapters as indicated in the course overview 26

27 Reading list Aktia Bank, Interim Report January-June 2016 Financial Crisis and Central Banks G30 (2015). Fundamentals of Central Banking. Lessons from the Crisis. EU-wide stress tests European Banking Authority EU-wide stress test. 29 July, European Capital Markets Union Goldman Sachs (2015). Unlocking Europe s economic potential through financial markets. Issue No: 15/07, February 21, The best case Stress testing European banks report 27

28 Exam Do not write too much: content counts, not length! If you write many unrelated issues in an answer, I ll deduct 2 points Do not answer true and false 0 points 28