Evidence accumulated over the last 20 years demonstrates that improvements in financial intermediation generate economic growth, both across countries and over time. We survey this literature and engage with some of its subtleties - such as the relative merits of bank-based and market-based financial systems, and the role of different legal systems in determining the level and pattern of investment.
We then consider market-based systems in more depth. We put debt, equity and derivatives under the microscope. We investigate the distinctive roles of stock markets, mutual funds, private equity and pension companies. What functions do these components of the system fulfill? What are their strengths and weaknesses? How has the financial system and government regulation evolved to build on their strengths and offset their weaknesses?
We then move on to an analogous consideration of bank-based financial systems. We investigate the distinctive roles of deposit banks, investment banks and universal banks in the system. We examine the causes and consequences of runs on individual banks as well as contagions between banks. We consider the merits of both "narrow banking" and "local banking", in terms of their efficiency, equity and stability. We examine the roles of local, national and international regulation (such as the Basel Accords).
The course will be largely empirical, drawing on both contemporary and historical evidence, but will be layered upon a theoretical skeleton.