Regulation & Financial Stability (2235.YR.008278.1)

General information

Type:	OPT	Curs:	1	Period:	S semester
ECTS Credits:	3 ECTS

Teaching Staff:

Group	Teacher	Department	Language
Year 1	Omar Rachedi	Economía, Finanzas y Contabilidad	ENG

What is financial stability and why do we care? How does regulation help? Is regulation effective? Do recent financial reforms represent enough change to address the issues that led to the recent crises? Why financial crises are so recurring? What are the looming threats to financial stability? Will the COVID outbreak eventually affect banks' balance sheets, converting the crisis into a financial recession?

The Global Financial crisis in 2008 and the Eurozone crisis in 2010 showed us how the whole economic system is put at risk when the financial sector weakens. After these two crises, there has been a radical change in the way financial stability is considered today and how regulation is responding to address it. In this course, we will examine the root causes and the implications of these crisis and the regulatory reforms implemented in order to protect financial stability both at international and European levels. We will analyze these through real case studies.

We will also examine current financial developments such as Fintech, shadow banking and the regulatory discussions around them. Finally, we will reflect on the risks that are ahead of us, such as climate change and geopolitics and what all mean for financial stability.

The course is structured as follows: We will start by framing the concept of financial stability and the key tools and frameworks for policy markets. Then, we will examine the issues of financial stability pre-crisis and the regulatory response post-crisis. Finally, we will reflect on the current financial developments, what kind of risks they pose to financial stability and what regulations are in place or on the works to tackle them.

The course will combine theory covering the concepts and main details of regulations, with practice to analyze real cases. The course is intended to put theory into practice. It will require pre-readings, active class discussion of real case studies, and group work into disentangling the future trends of the banking industry.

The objective of the course is twofold: (i) the student to gain a comprehensive overview of banking regulation and the international framework on financial stability (ii) the student to develop critical thinking to understand the sources of financial instability and its implications and to question the effectiveness of regulation to avoid it. At the end of the course, the student should have gained a robust background on existing financial regulation, the international and European framework and tools to ensure financial stability, and most importantly the student should have developed the capacity to think critically about the risks that are arising in the financial system and how regulation is (or isn't ) confronting them.
The student should be able to understand the big picture and be able to move from the broader issue to more detailed matters.

1. The definition of financial stability and the need for regulation 1.1 An overview of the banking industry 1.2 The history of financial crises 1.3 The need for deposit insurance 1.4 The causes and consequences of regulation 1.5 The main institutional players that oversee the banking industry

2. How did the financial crisis challenged the established regulatory framework? 2.1 The Basel Committee 2.2 Basel II - The Basic Concepts 2.3 Basel II - A Detailed Overview of all the Rules 2.4 The Last Financial Crisis: Causes 2.5 The Last Financial Crisis: Lessons Learnt

3. The new wave of regulation in the aftermath of the financial crisis 3.1 Too Big To Fail: The Financial Stability Board 3.2 Basel III: An Overview 3.3 Basel III: The Leverage Ratio 3.4 Basel III: The Liquidity Risk 3.5 Stress Testing: US and EU comparison 3.6 What's the Optimal Structure of Regulation?

4. Regulatory reforms in Europe: The Banking Union 4.1 Bank Resolution and Recovery Directive (BRRD): objective and tools 4.2 Banco Popular and Monte dei Paschi: case studies 4.3 The Supervisory role of the ECB 4.4 UK: Ring-fencing regulation

5. Relevant recent financial regulation: purpose and effect 5.1 EMIR and MIFID 5.2 IFRS 9 5.3 Basel IV

6. Rethinking banking: current developments and challenges for financial stability and regulation 6.1 Fintech 6.2 Shadow Banking and the Crash of Archegos 6.3 Climate change

7. Fintech and the Payment System

8. The Surge of Crypto

The handouts provided by the professor will cover the main concepts of the Couse. Additional readings will be required pre-class and after class. The exam will cover the topics covered in the handouts and in the required reading materials.

Group	Teacher	Department
Year 1	Omar Rachedi	Economía, Finanzas y Contabilidad