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Banking Systems. Role of the Central Bank

Учебный год
Обучение ведется на английском языке
Курс по выбору
Когда читается:
3-й курс, 3, 4 модуль

Course Syllabus


This program aims at training the undergraduate students so that they are well prepared for professional problem solving in the banking industry. Upon the successful completion of the program, students will acquire profound knowledge in international banking and will be confident when delving into the complex mechanisms of international banking regulation and financial stability. Students will also benefit from understanding of what is the effective and efficient international financial intermediation, including that brought by the systemically important financial institutions (SIFIs); how the processes of mergers and acquisitions (M&A) in the banking industry are run; and how the entire banking systems are transformed. They will also explore their understanding of risks in the international banking activity. Besides, the students will be in the know with role of the central bank in tailoring and fine-tuning the contemporary concept of the banking sector and the integrity of the national and regional economic systems. Upon the successful completion of this program, students will: • know the specifics of the development, operations, and transformation of banks and banking systems; • understand factors underlying the structure of banks and banking systems, as well as the international banking activity; • understand the urgency and inevitability of international regulation of banks and the banking sector; • possess skills required for the holistic view over banking risks, including those relevant to the M&A processes in the banking industry; • understand the role and specifics of the central bank for banking and financial sectors, its importance for financial stability, and how it manages sustainable economic growth.
Learning Objectives

Learning Objectives

  • To give students a holistic, updated, and unbiased understanding of how the international banking system works, why banks and banking systems are critical in shaping dynamics of the world economy, how the international financial markets depend on size and interconnectedness of larger banks, and how and the extent to which the international financial intermediation contributes to post-crisis recovery and financial stability
  • To provide students with the contemporary processes in international banking activity, make them understand the risks the internationally active banks face in their day-to-day activity and how those risks are managed and mitigated
  • To make students be cognizant with the specifics of systemically important financial institutions, complexity of their organizational structure and performance, the extent of their stress resilience to adverse externalities, and their effect on systemic stability amid the asymmetries of international financial markets and the processes of financial globalization and regionalization
  • To make students delve into the insights of central banking and the role of central banks in maintaining the well-being of banks and banking systems despite the challenges associated with sophisticated operating models of the banks and their increasing interconnectedness amid uncertainties and volatility of macro level dynamics
  • To focus students’ attention on various foci of the post-crisis reform of banking regulation and prudential banking supervision (a.k.a. Basel III), including institutional aspects of the reform, together with the issues of whether the banks are able to bring back their power as driving forces of economic development and sustainable economic growth
Expected Learning Outcomes

Expected Learning Outcomes

  • understand what is bank, what are the differences between bank and non-bank financial company , what is the bank’s role in the economy and its economic specifics, as well as types of banks and perspectives of digitalization in the banking industry.
  • understand the background and organization (structure) of banking systems, including core differences between the banking systems of the developed and developing economies; be able to make out the advantages and risks of interconnectedness of the financial institutions and its criticality on current developments of international banking activity and financial globalization.
  • possess the hands-on approach in dealing with when, why, and how banking systems transform and the extent to which they benefit from financial integration.
  • analyze the key driving forces underlying the activity of, and differences in, international and multinational banks; know the specifics of the internationalization process of the banking activities amid the challenges of the contemporary economic environment.
  • understand and be able to analyze various factors underlying risks associated with the international banking activity, as well as the tools and techniques applicable to the efficient risk mitigation approaches in the framework of risk management in banks.
  • know the objectives and driving forces of banking M&A, why banks need M&A and how banking M&A shapes the banking systems landscape, as well as the benefits and risks of the consolidation processes.
  • understand when the central banks apply the known instruments of the monetary policy, and how the central banks mitigate crisis developments, deal with the post-crisis recovery, and ensure financial stability.
  • know the specifics of banking regulation and how it ensures stress resilience of the banking sector and financial stability; understand Basel III and how macroprudential policy contributes to the integrity of the post-crisis international regulatory order.
Course Contents

Course Contents

  • What are banks and what are they for?
    Bank as an economic institution. Bank as a financial corporation. Role of banks in the contemporary economic systems. Banks as the locomotives of economic development and sustainable economic growth. Banking bases (core specifics of the concept of a bank). Types of banks (universal banks, commercial banks, investment banks) and their functional and structural specifics. Bank holding companies. Financial holding companies. Central banks. Theoretical and conceptual background and institutional aspects of the concept of domestic and global systemically important financial institutions (a.k.a. TBTF). Categorization of banks in the post-crisis era. Digitalization of banks and banking activity. Banks and fintech companies. Perspectives of “de-institutionalization” of banks, or the future of banks and the banking industry. Does society still need banks?
  • Banking systems
    Organization, structure, and functional specifics of the contemporary banking systems. Shadow banking sector and the system and mechanism of unregulated financial intermediation. Banking systems of the developed countries. Banking system of the U.S.A. (functional and organizational aspects). Specifics of the U.S. banking sector. Types of banks in the U.S. and specifics of their operating models and market activity. Banking system of the U.K. Structure and types of the U.K. banks. Recent transformations of the U.K. banking system. Banking system of the EU. Laws underlying the development and integration of the banking systems of EU member states. Perspectives of the EU-wide banking union. Banking systems of the emerging economies and their specifics. Foreign funded banks in the emerging markets. Banking system of China and its contemporary architecture. Shadow banking in China and its linkages to traditional banking system. Banking system of India and its structure. Type of banks in India. Banking system of Russia, its structure, specifics, and dynamics. Russian banks amid external economic sanctions.
  • Multinational and international banks
    Why do banks feel confined within their national boundaries and domestic financial markets? “Multinationalization” of banks and globalization of banking operations. Reasons underlying multinational banking and the driving forces of banking sector “multinationalization.” Difference between multinational and international bank. International financial centers and their core economic characteristics. Basic functions and functional specifics of the interbank financial market. Sample balance sheet structure of a multinational bank. Global banks and financial crises. The scope and limits of internationalization of the banking activities in 21st century and its driving forces.
  • Transformation of banking systems
    Macro- and micro-level aspects of transformation of banking systems. Regionalization of banking systems and its underlying reasons. Core characteristics of banking sector integration. ECB’s indicators of financial integration in the eurozone area. Core milestones of the EU financial regionalization and integration. Challenges and pitfalls of the processes of banking regionalization/integration and creation of a banking union (evidence from the EU banking sector experience). Perspectives of financial systems integration in the EAEU. Future scenarios of banking sector under transformation.
  • Banking risks
    Causes and sources of risks in the banking sector. Types of risks and their classification. Importance of market discipline in mitigation of the risk-driven factors. Major risks (credit risk, market risk, operational risk), other significant risks (liquidity risk, business risk, reputational risk), unrelated (secondary) risks (systemic risk, risk of moral hazard). Systemic and systematic risks (not to be confused!). Risk management framework and risk management mechanisms. Perspectives of risk function in the bank’s operating model. Sovereign and country risks as idiosyncratic risks of the macro level. Bank failures and their main determinants.
  • Mergers and acquisitions (M&A) of banks
    Core M&A statistics in the banking sector worldwide. Why banks go for M&A? or: Background, rationality, and expedience of the M&A deals in the banking industry. M&A deal drivers. Cross-border banking M&A and their importance in shaping the dynamics of international financial markets. Banking M&A objectives and stages. M&A as a tool for economies of scope and economies of scale in the banking sector. M&A measurement. Herfindahl–Hirschman index (HHI). Controversies of banking M&A. Benefits and risks of M&A in the banking industry. Balancing between M&A deals and systemic risks. The effect of M&A on competition (level playing field) in the banking system. Latest priorities associated with the M&A deal making. The effect of the Volcker Rule on the M&A processes. M&A as an inorganic growth of banks.
  • Central bank as an economic institution
    What is central bank? Difference between central bank and commercial banks. Structure of central banking in the world. Core functions of the central bank. Balance sheet structure of the central bank. Central bank as a national lender of last resort. Central Bank as an international lender of last resort? International reserves held by central banks and their structure. Monetary policy of the central banks and monetary policy “administration.” Criticality of monetary policy in ensuring the balanced economic development and sustainable economic growth. Functional specifics of the central banks (evidence from the U.S. Federal Reserve System). Central banks and financial stability. Why the economic systems and society at large cannot forgo central banks?
  • International banking regulation
    Background and evolution of national banking regulation (evidence from the U.S., U.K., and Russia). Evolution and core milestones of international banking regulation. Global regulatory authorities. Deregulation (1980s–2008). Specifics of the contemporary paradigm of banking regulation and its criticality for the post-crisis recovery. Core elements of banking regulation and prudential banking supervision. Difference between banking regulation and banking supervision. Specifics of the post-crisis regulatory order and the supervisory mechanism. Post-crisis regulatory standards (Basel III). Post-Basel III, or: Perspectives of Basel IV. Regulatory objectives. Regulatory instruments. Regulatory institutions. Regulatory models. Macroprudential regulation. Difference between micro- and macroprudential regulation. Stress testing of banks. Regionalization and supranationalization of banking regulation. Vulnerabilities and outstanding issues of the international banking regulation reform.
Assessment Elements

Assessment Elements

  • non-blocking Seminars
  • non-blocking Control work 1
  • non-blocking Control work 2
  • non-blocking Essay
  • non-blocking Class attendance
  • non-blocking Exam (for those graded 0-3 for the Program)
    This is an oral exam with synchronous proctoring. The exam is based on the Webinar platform (https://webinar.ru/), proctoring is based on the Examus platform (https://hse.student.examus.net). Students must be online 15 minutes before the exam starts. Software testing is available on the Examus platform. The student’s computer must meet the following requirements: https://elearning.hse.ru/data/2020/05/07/1544135594/Технические%20требования%20к%20ПК%20студента.pdf) To participate in the exam, the student should access the proctoring platform in advance, conduct a system test, turn on the camera and microphone, and confirm his/her identity. During the exam students are prohibited from communicating (using social networks or with somebody else in the room), cheating. During the exam students are allowed to use the calculator. An up to 1 minute interruption in communication is considered as a short-term following which students may continue the exam. Interruption in communication of 1 minute and more is considered as a long-term, following which students cannot continue their participation in the exam. Retaking the exam is similar to the exam as above. Экзамен проводится в устной форме с использованием синхронного прокторинга. Экзамен проводится на платформе Webinar (https://webinar.ru/), прокторинг на платформе Экзамус (https://hse.student.examus.net). К экзамену необходимо подключиться за 15 минут. На платформе Экзамус доступно тестирование системы. Компьютер студента должен удовлетворять следующим требованиям: https://elearning.hse.ru/data/2020/05/07/1544135594/Технические%20требования%20к%20ПК%20студента.pdf) Для участия в экзамене студент обязан: заранее зайти на платформу прокторинга, провести тест системы, включить камеру и микрофон, подтвердить личность. Во время экзамена студентам запрещено: общаться (в социальных сетях, с людьми в комнате), списывать. Во время экзамена студентам разрешено пользоваться калькулятором. Кратковременным нарушением связи во время экзамена считается прерывание связи до 1 минуты. Долговременным нарушением связи во время экзамена считается прерывание связи 1 минута и более. При долговременном нарушении связи студент не может продолжить участие в экзамене. Процедура пересдачи аналогична процедуре сдачи.
Interim Assessment

Interim Assessment

  • Interim assessment (4 module)
    0.1 * Class attendance + 0.15 * Control work 1 + 0.25 * Control work 2 + 0.25 * Essay + 0.25 * Seminars


Recommended Core Bibliography

  • Ata Can Bertay, Asli Demirgüç-Kunt, & Harry Huizinga. (2019). Are international banks different? Evidence on bank performance and strategy. BIS Working Papers. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.bis.biswps.790
  • Bostwick, E. D. (2019). The Little Bank That Could: An Examination of the Historical and Financial Records of One Bank That Survived the Great Depression. Accounting Historians Journal, 46(2), 17–31. https://doi.org/10.2308/aahj-52528
  • Chawla, O. P. (2019). Evolution of Banking System in India Since 1900. New Delhi, India: Sage Publications Pvt. Ltd. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2169021
  • Chey, H. (2014). International Harmonization of Financial Regulation? : The Politics of Global Diffusion of the Basel Capital Accord. New York: Routledge. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=685067
  • Di Vittorio, F., Li, D., & Yun, H. (2018). On Bank Consolidation in a Currency Union. [N.p.]: INTERNATIONAL MONETARY FUND. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1812105
  • Elements of financial risk management, Christoffersen, P. F., 2012
  • Felix I. Lessambo. (2019). The U.S. Banking System : Laws, Regulations, and Risk Management (Vol. 1st ed. 2020). Cham: Palgrave Macmillan. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2334751
  • Ferber, T. V. aut. (2016). European banking regulation after the financial crisis : franco-german conflict of interest during the negotiations on a single resolution fund / Tim Ferber. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edswao&AN=edswao.483038393
  • Gambacorta, L., van Rixtel, A., & Schiaffi, S. (2019). Changing Business Models in International Bank Funding. Economic Inquiry, 57(2), 1038–1055. https://doi.org/10.1111/ecin.12738
  • Ghosh, A. (2012). Managing Risks in Commercial and Retail Banking. Hoboken: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=435168
  • Herger, N. (2019). Understanding Central Banks. Cham, Switzerland: Springer. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2030954
  • King, B. (2019). Bank 4.0 : Banking Everywhere, Never at a Bank. Chichester, West Sussex, United Kingdom: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1995220
  • Lóránth, G., & Morrison, A. (2018). The corporate structure of multinational banks. CEPR Discussion Papers. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.cpr.ceprdp.12688
  • Multinational banks and the global financial crisis: Weathering the perfect storm? (2014). Journal of Money, Credit and Banking, 46(SUPPL.1), 333–364. https://doi.org/10.1111/jmcb.12094
  • Quigley, E. (2018). Bank. Dublin, Ireland: Little Island Books. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1823626
  • Regular Banking System versus Shadow Banking System. A Comparative Assessment of Evidence from Romania. (2019). https://doi.org/10.26458/jedep.v8i4.650
  • Risk management in banking, Bessis, J., 2015
  • Roxana Bădîrcea, Alina Manta, Ramona Pîrvu, & Nicoleta Florea. (2016). Banking Integration in European Context. Amfiteatru Economic, (42), 317. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsdoj&AN=edsdoj.6eeed79ae173470cbb8d3a06737e911e
  • Tognato, C. (2012). Central Bank Independence : Cultural Codes and Symbolic Performance (Vol. 1st ed). New York: Palgrave Macmillan. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=521530
  • Warjiyo, P., & Juhro, S. M. (2019). Central Bank Policy : Theory and Practice (Vol. First edition). Bingley: Emerald Publishing Limited. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2026184
  • Went, P., Donohue, C., Apostolik, R., & Global Association of Risk Professionals. (2009). Foundations of Banking Risk : An Overview of Banking, Banking Risks, and Risk-Based Banking Regulation. Hoboken, N.J.: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=835736
  • Williams, G. (2019). The Evolution of China’s Banking System, 1993–2017. Abingdon, Oxon: Routledge. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1840309
  • Yondo Belle, S. (Serge). (2016). Effects of mergers & acquisitions on financial performance of USA acquiror banks. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsndl&AN=edsndl.oai.union.ndltd.org.oulo.fi.oai.oulu.fi.nbnfioulu-201606072440

Recommended Additional Bibliography

  • Aleksandr, B. (2019). Influence of Modern Financial Technologies on the Institutional Structure of the Russian Banking System. Vestnik Universiteta, (9), 143–148. https://doi.org/10.26425/1816-4277-2019-9-143-148
  • Alexis Derviz, & Jiří Podpiera. (2011). Lending behavior of multinational bank affiliates. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.A4D3D81C
  • ALINA LIGIA DUMITRESCU. (2014). The Banking Union – the Solution to Reduce the European Banking System Risks? Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.D1561E91
  • Amiti, M., McGuire, P., & Weinstein, D. E. (2019). International Bank Flows and the Global Financial Cycle. IMF Economic Review, 67(1), 61–108. https://doi.org/10.1057/s41308-018-0072-6
  • Cochrane, J. H., Palermo, K., Taylor, J. B., & Auclert, A. (2019). Currencies, Capital, and Central Bank Balances. Stanford, California: Hoover Institution Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2037242
  • Diemer, M. (2016). Who should rescue subsidiaries of multinational banks? Journal of Financial Stability, (C), 159. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.finsta.v26y2016icp159.174
  • Donaldson, J., & Flagg, D. (2014). Using Derivatives to Hedge Interest Rate Risk: A Student Exercise. Research in Higher Education Journal, 24. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=eric&AN=EJ1064089
  • Frey, R., & Düwel, C. (2013). Competition between foreign affiliates: Multinational banks internal funding in the crisis. Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.zbw.vfsc13.80013
  • GARA, A., VARDI, N., & KAUFLIN, J. (2019). Fintech’s Secret Bank: The Forbes Investigation. Forbes, 202(10), 126–134. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=bsu&AN=140351033
  • Hadir H. Shubbar, & Andrey V. Guirinsky. (2019). Contents and principles of stability of the banking system. RUDN Journal of Economics, (1), 63. https://doi.org/10.22363/2313-2329-2019-27-1-63-71
  • Hans, C. (2017). Systemic risk in the banking sector: a network perspective. Universitat Pompeu Fabra, 2017. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edstdx&AN=edstdx.10803.420878
  • Har Wai-Mun, Lee Teck-Heang, & Tam Cai-Lian. (2011). Readiness of ASEAN Banking Sector Integration: Recent Development and Statistical Evidence. IUP Journal of Monetary Economics, 9(1), 46–65. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=bsu&AN=59337828
  • Knaack, P. V. (DE-588)1101844108, (DE-576)470004916, aut. (2017). An unlikely champion of global finance : why is China exceeding international banking standards? / Peter Knaack. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edswao&AN=edswao.495652792
  • Liu, K. (2019). Chinese Shadow Banking: The Case of Trust Funds. Journal of Economic Issues (Taylor & Francis Ltd), 53(4), 1070–1087. https://doi.org/10.1080/00213624.2019.1668338
  • Rafał, S. (2013). Remarks on the Transformation of the Polish Banking System by the Reforms After 1989. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.2FA0861E
  • Ramlall, I. (2016). Central Bank Ratings : A New Methodology for Global Excellence. Basingstoke, Hampshire: Palgrave Pivot. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1231425
  • Risk management and financial institutions, Hull, J. C., 2015
  • Selgin, G. A., Bédard, M., & Dowd, K. (2017). Financial Stability Without Central Banks. London: London Publishing Partnership. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1679978
  • Yin-Pheng Lim, P., Khong, R. W. L., & Hui-Boon Tan. (2015). Bank Integration and Systemic Risk: Panacea or Pandemic? Journal of Developing Areas, 49(4), 301–312. https://doi.org/10.1353/jda.2015.0141