Course description

Credit Markets and Financial Crises

Introduction

This course seeks to provide a comprehensive overview of credit markets and some of the important crises that has occurred in the last century (esp. 1930s and the 2007 financial crisis). It covers the financial instrument and institutions that exist and operate in credit markets, with a special emphasis on the role of banks, but will also look at institutions such as pension, mutual and hedge funds and discuss the linkages that exist between these funds and banks. Credit provision in the form of bank lending, securitization and structured financial products such as credit derivatives and CDOs will be studied. The role of government subsidies and regulations, and how these may impact market participants incentives and behaviour will also be adressed.
The course contains a mix of theory, institutional aspects and case studies of actual events.

Course content

(Details may vary from year to year)

  1. Credit markets and asymmetric information
  2. Banks and other financial intermediaries
  3. Securitization and credit derivatives
  4. Government subsidies and regulations
  5. Case study(ies)

Learning outcome knowledge

  1. To get an overview of existing institutional arrangements and structures.
  2. To study the linkages that exist between different institutions operating in credit markets.
  3. To understand how the existence of asymmetric information in credit market make these markets different from other markets and gives rise to moral hazard and adverse selection problems that affect participants' incentives and behaviours.
  4. To understand how the design of financial contracts may mitigate or enlarge risks and problems arising from asymmetric information.
  5. To understand how government subsidies and regulations may mitigate or enlarge risks and problems arising from asymmetric information.
  6. To understand how financial shocks may be transmitted to the real sector.

Exam organisation

  • Written assignment: 10%
  • Written assignment: 10%
  • Written assignment: 10%
  • Written assignment: 10%
  • Written exam: 60%