Course type
IWH-DPE Elective Course (Banking & Finance Topic Track); Special Course
Lecturer
Professor Michael Koetter, PhD (IWH & OvGU)
Summary
How do financial funds find their way from savers to investors? This intermediation function is critical to the accumulation and allocation of capital in the real economy. We study in this course, (i) how financial institutions operate to conduct their intermediation function, (ii) which idiosyncratic, systematic, and systemic risks that are particular to banking can arise, (iii) whether and how markets and central planners set guardrails, and (iv) which real effects result from (in)efficient intermediation.
This course pursues three major learning objectives. First, it acquaints students with little knowledge of banking and finance with the basic principles of financial intermediation. Besides studying academic literature, this objective is achieved by students managing, either individually or in teams, virtual banks that compete with another using the ProBanker simulation suite. Second, students understand how the very nature of financial intermediation gives rise to externalities that call for extensive regulation. Third, students learn about selected contemporary topics at the frontier of academic research in the broadly defined field of financial intermediation.
Schedule
11.06.2026 14:00-15:30 and 16:00-17:30 IWH, Leipziger Str. 100, 3rd floor, Conference Room
ProBanker online simulation rounds of competitive markets at 12:30 sharp on June 15, 17, 19, 22, 24
25.06.2026 14:00-15:30 and 16:00-17:30 IWH, Leipziger Str. 100, 3rd floor, Conference Room
Content
- Financial intermediation and the European Banking Union
- Banking in practice: Simulations in autarky and in competitive markets
- Policy and politics in banking
- Real effects of financial intermediation
Course requirements
Attendance at all lectures and all ProBanker online simulation rounds is mandatory (25% of grade).
Financial performance rank at the end of ProBanker simulations (15% of the grade).
A recorded presentation to explain management decisions taken and results (60% of the grade).
Suggested Reading
Financial intermediation and the European Banking Union
Freixas, X., J.-C. Rochet (2023). Microeconomics of Banking. MIT, 3rd ed.
Busch, D., G. Ferrarini (2020). European Banking Union, OUP, 2nd ed.
Diamond, D., P. Dybvig (1983). Bank Runs, Deposit Insurance, and Liquidity, Journal of Political Economy 91(3), 401–419.
Douglas W. Diamond (1984), Financial Intermediation and Delegated Monitoring, Review of Economic Studies, 51(3), 393–414
Gennaioli, N., A. Shleifer, R. Vishny (2013). A Model of Shadow Banking, Journal of Finance 68(4), 1331–1363.
Banking in practice: Simulations in autarky and in competitive markets
ProBanker: https://www.probanker.com
Keeley, M. (1990). Deposit Insurance, Risk, and Market Power in Banking, American Economic Review 80(5), 1183–1200.
Repullo, R. (2004). Capital Requirements, Market Power, and Risk-Taking in Banking, Journal of Financial Intermediation 13(2), 156–182.
Berger, A., C. Bouwman (2009). Bank Liquidity Creation, Review of Financial Studies 22(9), 3779–3837.
Policy and politics in banking
Bernard, D., A. Capponi, J. Stiglitz (2022). Bail-ins and Bailouts: Incentives, Connectivity, and Systemic Stability, American Economic Review 112(8), 2581–2618.
Brunnermeier, M., L. Garicano, P. Lane, M. Pagano, R. Reis, T. Santos, S. Van Nieuwerburgh, D. Vayanos (2017). The Sovereign-Bank Diabolic Loop and ESBies, American Economic Review P & P 107(5), 508–512.
Mian, A., A. Sufi, F. Trebbi (2014). Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises, American Economic Journal: Macroeconomics 6(2), 1–28.
Carletti, E., G. Dell’Ariccia, R. Marquez (2021). Supervisory Incentives in a Banking Union, Management Science 67(1), 455–475.
Bittner, C., A. Rodnyansky, F. Saidi, Y. Timmer (2026). Mixing QE and Interest Rate Policies at the Effective Lower Bound: Micro Evidence from the Euro Area, Review of Finance.
Real effects of financial intermediation
Levine, R. (2005). Finance and Growth: Theory and Evidence, in: P. Aghion, S. Durlauf (eds.), Handbook of Economic Growth, Vol. 1A, Elsevier, Amsterdam, 865–934.
Chodorow-Reich, G. (2014). The Employment Effects of Credit Market Disruptions: Firm-level Evidence from the 2008–09 Financial Crisis, Quarterly Journal of Economics 129(1), 1–59.
Jayaratne, J., P. Strahan (1996). The Finance-Growth Nexus: Evidence from Bank Branch Deregulation, Quarterly Journal of Economics 111(3), 639–670.
Beyene, W., M. Delis, K. de Greiff, S. Ongena (2024). Bank Lending and the Transition to a Low-Carbon Economy, Review of Finance.
Registration
Please register for the course until June 3, 2026 by sending an e-mail to cgde@iwh-halle.de.