040072 SE OeNB Guest Lecture (2025S)

Modern financial intermediation theory helps to understand the role of banks in the economy, with particular emphasis on their credit intermediation and maturity and liquidity transformation functions. It also helps understand the fragility associated with banks’ funding structures, the rationale for institutions such as deposit insurance, the historical prevalence of bailouts in response to banking crises, and the incentive problems and externalities that justify the prudential regulation of banks. Against this general background, this course presents a collection of models and methodologies useful for the economic analysis of banks’ micro- and macro-prudential regulations. Navigating mainly through research contributions of the instructor, the course will analyze regulations addressing the financial stability implications of banks’ exposure to solvency risk and liquidity risk. Special attention will be paid to issues such as the excessive risk taking incentives associated with banks’ high leverage and the analysis of capital requirements in partial and general equilibrium models.

The topics covered in the course will be motivated using real-world facts, institutional details, regulations, and policy debates, but its core contents will be analytical, relying on methods of applied economic theory and models included in published or unpublished research-oriented papers from the reading list. Some of the general equilibrium analysis will rely on methods typically used in quantitative macroeconomics.

The course is organized in several units that are described, together with a list of references for each of them, in the reading list below. For each unit, the instructor will distribute the slides that will be presented in the lectures and that will constitute the main study material for the course.