- October 18, 2020
Financial Intermediation and Financial Markets Fall 2020 Instructor: Marco Macchiavelli Academic website: https://sites.google.com/view/marco-macchiavelli-webpage/ Phone: 202-815-6316 Email: [email protected] Office Hours: Mondays, 5 to 6 PM (EST), via Zoom (reserve by email) Purpose of the Course: • Examines why financial intermediaries exist and how they co-exist with financial markets. • Analyzes the economic consequences of financial market imperfections. • Understand how central banks interact with banks to conduct monetary policy. • Examines theories of bank runs and systemic risk. • Shows how different financial systems and governments can cope with financial crises, financial fragility, and credit market frictions. Learning Objectives: 1. By the end of the course you will learn the structure of financial intermediaries and financial markets, their benefits, risks, and vulnerabilities. 2. Even more important than the institutional details that you will learn, I want you to practice your critical thinking. You will dig deeper in one subject of your choosing (among topics related to the course material) and write a SHORT ESSAY. It is important to learn to research a new topic on your own. Once you choose a topic and collect some material on it (newspaper articles, short papers, industry analysis), you will consult with me and may direct you to additional material. The FIRST DRAFT of your essay will count as your MIDTERM EXAM. After that, I will give you feedback on where and how to improve it, and you will incorporate my suggestions in the FINAL DRAFT, which will count as your FINAL EXAM. (More details later.) I want you to practice writing short essays because it is a critical skill that is most likely required in your current or future job. I would rather have you practice that skill now than when you are at work under strict time constraints. In general, people have limited attention spans and want to know from you why they should care about what you are going to tell them. An effective presentation or summary needs to start by you telling the audience or the reader why they should care about the topic, followed by why what you are going to say matters. Textbook: Anthony Saunders and Marcia Cornett, Financial Markets and Institutions, Seventh Edition, McGraw Hill Education, ISBN: 978-1-259-91971-8. Please purchase the e-book with the access code needed to turn in the online homework assignments. Specific Technology Requirements & Skills for this Course: Learning online requires some basic knowledge of computer technology. At a minimum, you need to be able to: • Navigate in and use Blackboard; the Blackboard Student Orientation course on your “My Institution” page • Create and save MS Word documents; see MS Word training and tutorials for PC users (all versions); Word Help for Mac users • Find basic resources on the Internet • Create and organize files & folders on your computer • Send, receive, and manage email Grading. The weights for each of the components are as follows: • Assignments 40% • First Draft of the Essay (think of it as a Midterm Exam) 30% • Final Draft of the Essay (think of it as the Final Exam) 30% Final course letter grades are based upon the weighted score. Course grade cutoffs may be adjusted if exam averages deviate significantly from the norm. Generally, numerical course grades will be translated into letter grades as follows: A+ 98% to 100% A 92% and less than 98% A- 90% and less than 92% B+ 80% and less than 89% B 70% and less than 79% B- 60% and less than 69% C 50% and less than 60% F 0% and less than 50% Midterm and Final Exams—Writing a Short Essay. Each student must write their own individual essay, no collaboration. Step 1. As soon as you find a topic related to financial intermediaries and markets that interests you, and no later than OCTOBER 18 at 7 pm EST, send me an email and include the following: a. the topic (see examples below) b. what makes the topic interesting or puzzling c. the tentative list of readings and resources that you will base your essay on I will reply with some guidance, if needed, or other suggested readings. Topics regarding financial intermediaries and markets include, but are not limited to: • History of banking panics and interventions, pre and post central banks being established; • The 2007-09 financial crisis: root causes, accelerants, and effectiveness (or lack thereof) of policy interventions; • The European sovereign debt crisis: bailouts vs bail-ins; • The Covid19 crisis (either in the US or abroad), its impacts on the economy and financial markets, and unprecedented policy interventions; • How to restore stability after a crisis: stress testing, transparency, and tighter regulations. What works and what doesn’t. Do regulations work when they are supposed to? Basel 3 (capital ratio, leverage ratio, liquidity coverage ratio, …), the Volcker rule, and the 2016 SEC money market fund reform; • Liquidity providers: how do they function in normal times and how they fare under stress. This can include banks via credit lines, broker-dealers via market-making, ETFs, CLOs, Private Equity funds, etc etc.; • Fintech: what problems are Fintech firms trying to solve? How are they doing now? Are they substituting or partnering with regulated banks? Some resources where to find interesting topics and material: Wall Street Journal (Go to this database!) , Financial Times (Go to this database!). I highly recommend reading them every day, especially for coverage of the COVID-19 economic and financial crisis. For help accessing the online newspapers, contact the Librarian at [email protected] https://libertystreeteconomics.newyorkfed.org/ (option to view by topic on the right) https://som.yale.edu/faculty-research-centers/centers-initiatives/program-on-financial-stability (including links to the left: research guides, resource library, the global financial crisis, covid19 crisis) https://www.bis.org/forum/research.htm (including trending topics, FSI insights, BIS bulletins) https://www.federalreserve.gov/econres/notes/feds-notes/default.htm https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19 Step 2. Once you find a topic and a set of readings, work towards your first deliverable, the MIDTERM EXAM, which is the first draft of your short essay. Target no more than 5 pages in Word (font 12, double spaced) and include the list of citations at the end of the essay. If you include figures, put them at the end of the essay and exclude them from the page count. Think about what makes the topic important; that should be your opening paragraph(s). Is there consensus on the topic, or is it controversial? For instance, what is the aim of a certain regulation? Can there be unintended consequences? Are there unanswered questions? In the next paragraph, summarize your main message, which you then elaborate on in the remainder of the essay. Conclude the essay with a short summary of your main point(s). Finally, at the end of your essay, write down your sources/citations. I expect you to indicate the material that you are basing your essay on. It is OK to summarize the viewpoints expressed in different articles and use them to formulate your own point of view. However, it is not OK to copy and paste others’ material. Strive to write concisely and to build your argument logically. That takes time and reading your own draft a few times. Submit the first draft on Blackboard (Lessons > Midterm Exam) no later than on November 8, at 7 pm ET. (This is the MIDTERM Exam). Step 3. Once you receive my feedback, work on addressing my comments and anything else that you may want to change to make your essay more concise and compelling. If my comments are not clear, email me as soon as possible. Submit the final draft on Blackboard (Lessons > Final Exam) no later than on December 6, at 7 pm EST. (This is the FINAL Exam). If you find your topic and start working on it early, you can deliver your midterm (and final) exam before the deadline. Evaluation Criteria for Midterm and Final: I will evaluate both the midterm and final exams depending on how well you do along the following dimensions: • how much guidance you needed—a lot of guidance will impact negatively, but a few suggestions before and after the midterm will not impact negatively; • explain why the topic you choose is important; • ability to provide a complete view of the topic, possibly summarizing more than one viewpoint; • ability to deliver sometimes complex matters in a way that an average person would understand;• ability to write concisely; • address my comments; Assignments There will be eight weekly graded assignments. The assignments consist of numerical problems and multiple-choice questions. Each weekly assignment will count equally towards the 40% of the final grade reserved for assignments. No collaboration on assignments. You will have a week to complete each assignment and turn in your response, as each assignment is due by the following Sunday evening (11:59 pm ET). Only the first assignment will be due in two weeks. If you do not complete an assignment for a particular week, you simply must accept a score of ‘0’ for that assignment. Course Communications It is preferred that most questions be asked within listed topics of the Discussions section on Blackboard, as that way information (questions and answers) can be shared by everyone in the class. The standard way to contact me is by email at [email protected] Course Schedule Since the course starts on Monday, August 31, each week starts on a Monday and ends the following Sunday. Week Subject Chapters Weeks of Aug 31 and Sept 7 Overview & Interest Rates Chapters 1, 2, and 3 Week of Sept 14 Money & Bond Markets Chapters 5 and 6 Week of Sept 21 Stock & Mortgage Markets Chapters 7 and 8 Week of Sept 28 Commercial Banking Chapters 11 and 14 Week of Oct 5 Investment Banks & Monetary Policy Chapters 16 and 4 Week of Oct 12 Liquidity Risk, Bank Runs & Regulations Chapters 21 and 13 Week of Oct 19 Credit & Interest Rate Risk Management Chapters 20 and 22 Week of Oct 26 Preparation for Midterm — Weeks of Nov 2 MIDTERM WEEK Submit first draft by Nov 8, at 7 pm ET Week of Nov 9 Insurance & Investment Companies Chapters 15 and 17 Weeks of Nov 16 Preparation for Final — Week of Nov 23 Thanksgiving Break — Week of Nov 30 FINAL WEEK Submit final draft by Dec 6, at 7 pm ET University Policies General This course adheres to all University policies described in the academic catalog. Please pay close attention to the following policies: Students with Disabilities Johns Hopkins University is committed to providing reasonable and appropriate accommodations to students with disabilities. Students with documented disabilities should contact the coordinator listed on the Disability Accommodations page. Further information and a link to the Student Request for Accommodation form can also be found on the Disability Accommodations page. Ethics & Plagiarism JHU Ethics Statement: The strength of the university depends on academic and personal integrity. In this course, you must be honest and truthful. Ethical violations include cheating on exams, plagiarism, reuse of assignments, improper use of the Internet and electronic devices, unauthorized collaboration, alteration of graded assignments, forgery and falsification, lying, facilitating academic dishonesty, and unfair competition. Report any violations you witness to the instructor. Read and adhere to JHU’s Notice on Plagiarism. Dropping the Course You are responsible for understanding the university’s policies and procedures regarding withdrawing from courses found in the current catalog. You should be aware of the current deadlines according to the Academic Calendar. Getting HelpYou have a variety of methods to get help on Blackboard. Please consult the resource listed in the “Blackboard Help” link for important information. If you encounter technical difficulty in completing or submitting any online assessment, please immediately contact the designated help desk listed on the AAP online support page. Also, contact your instructor at the email address listed in the syllabus. Copyright Policy All course material are the property of JHU and are to be used for the student’s individual academic purpose only. Any dissemination, copying, reproducing, modification, displaying, or transmitting of any course material content for any other purpose is prohibited, will be considered misconduct under the JHU Copyright Compliance Policy, and may be cause for disciplinary action. In addition, encouraging academic dishonesty or cheating by distributing information about course materials or assignments which would give an unfair advantage to others may violate AAP’s Code of Conduct and the University’s Student Conduct Code. Specifically, recordings, course materials, and lecture notes may not be exchanged or distributed for commercial purposes, for compensation, or for any purpose other than use by students enrolled in the class. Other distributions of such materials by students may be deemed to violate the above University policies and be subject to disciplinary action. Code of Conduct To better support all students, the Johns Hopkins University non-academic Student Conduct Code has been integrated and updated to include all divisions of the University. In addition, it is important to note that all AAP students are still accountable for the Code of Conduct for Advanced Academic Programs. Title IX Confidentiality and Mandatory Reporting As an instructor, one of my responsibilities is to help create a safe and inclusive learning environment on our campus. I also have mandatory reporting responsibilities related to my role as a Responsible Employee under the Sexual Misconduct Policy & Procedures (which prohibits sexual harassment, sexual assault, relationship violence and stalking), as well as the General Anti-Harassment Policy (which prohibits all types of protected status based discrimination and harassment). It is my goal that you feel able to share information related to your life experiences in classroom discussions, in your written work, and in our one-on-one meetings. I will seek to keep information you share private to the greatest extent possible. However, I am required to share information that I learn of regarding sexual misconduct, as well as protected status based harassment and discrimination, with the Office of Institutional Equity (OIE). For a list of individuals/offices who can speak with you confidentially, please see Appendix B of the JHU Sexual Misconduct Policies and Laws. For more information on both policies mentioned above, please see: JHU Relevant Policies, Codes, Statements and Principles. Please also note that certain faculty and other University community members also have a duty as a designated Campus Safety Authority under the Clery Act to notify campus security of certain crimes, as well as a duty under State law and University policy to report suspected child abuse and/or neglect.