Financial Stability and Regulation

Financial stability can be defined as a condition in which the financial system is capable of withstanding shocks and the unraveling of financial imbalances. Safeguarding financial stability requires identifying the main sources of inefficiencies in the allocation of financial resources and the mismanagement of financial risks. The aim of this course is to provide an overview of recent theories and empirical findings that constitute the prerequisites to understanding, monitoring, and safeguarding financial stability. The course features a comprehensive treatment of systemic risk in banking, with a special focus on the 2007-08 global financial crisis. We will study the anatomy of modern banking systems and the contagious spread of vulnerabilities in such systems. Moreover, we will study several channels through which systemic banking crises propagate across countries. The course puts large weight on lessons for financial stability policy. In particular, we will review unconventional monetary policy measures and macro-prudential regulatory frameworks aimed at maintaining financial stability.

Upon completion of this course, you will be able to:

• Understand the main mechanisms behind financial stability and instability
• To better understand the underlying structures of the global financial system
• To capture the implications of regulatory reform on the banks and the financial systems
• To link the regulatory reform to key operations such as risk management
• To understand the role of key institutions such as rating agencies and central counterparties
• To capture the main functions of regulating and supervising bodies