ECONS528: GOVERNANCE AND REGULATION OF FINANCIAL INSTITUTIONS ORGANISATION OF THE COURSE

1. ECONS528: GOVERNANCE AND REGULATION OF FINANCIAL INSTITUTIONSORGANISATION OF THE COURSE Pierre Francotte 2012-13

2. CONTENTS • Objectives • Coverage • Scope • Whatthis course willteachyou • Structure of the course • Reading material • Classes • Exams • Econs532- Field project • For reference

3. OBJECTIVES • Allow you to understand: • how markets function in practice • the relevant business and policy drivers, • the trade-offs in a real business and regulatory environment. • Purpose is to make you more effective, more quickly, in your future professional or academic environment.

4. OBJECTIVES – Cont’d • The approach is cross-disciplinary (economics, business, policy, law, etc). • Because it is the combination of these different factors that drives: • decision-making and risk-taking by financial institutions, and • stance of regulatory bodies.

5. COVERAGE • The course covers: • financial regulation (understood as regulation and supervision of financial institutions and of financial markets), • financial institutions’ governance topics. • But before you can understand regulation you need to understand the markets themselves, and the course covers therefore financial markets and their functioning.

6. COVERAGE – Cont’d • Focus is on policy and practice of financial markets and of regulation. • It is not a course on economics theory. • It is intended to be complementary to (and not to repeat) the economics theory you have already learned.

7. SCOPE • Market, regulatory and governance topics will be covered from different standpoints: • national (e.g. Belgium, UK, US), • European (EU or Eurozone), and/or • global. • On relevant topics, we will compare Europe and US, and sometimes Asia-Pacific.

8. WHAT THIS COURSE WILL TEACH YOU • At the end of this course, you will be able to: • relate economics theory to the way the financial markets work in practice, • know the basics of the key financial products and actors and of their business and regulatory challenges, and • make connections between the different segments of the financial markets. • Which is something your future employers expect and rarely provide as part of their new recruits training.

9. STRUCTURE OF THE COURSE • Course has 7 chapters, which will be organised generally as indicated below. • Delivered over 12 lessons of 2 hours each. • All classes are given in English.

10. Chapter I: General Introduction I. Financing II. Financial regulation

11. Chapter II: The transformation of financial markets and the evolution of the banking model I. Introduction II. Sizing up the financial markets III. The transformation of the financial markets IV. The evolution of the traditional banking model

12. Chapter III: Main Financial Products • Introduction • Securities • General • Shares • Bonds • Funds • Derivatives • Review of specific products • Money market funds • Repurchase Agreements (Repos) • Subprimes and Collateral Debt Obligations (CDOs) • Credit Default Swaps (CDS) • Covered bonds

13. Chapter IV: Main Actors • Introduction • Banks • Key other intermediaries • Investment banking • Asset management • Hedge funds • Sovereign wealth funds • Private equity • Global custody • Local custody IV. Annex

14. Chapter V: Securities and DerivativesMarkets • Introduction • Holding and Transfer • Infrastructures A. Exchanges B. Central Counterparties (CCPs) C. Central Security Depositories (CSDs) D. International CSDs (ICSDs)

15. Chapter VI: Financial Regulation and Supervision • Regulatory Framework • 2007-10 financialcrisis and itsaftermath • Regulation of financial institutions • Regulation of otherstakeholders • Competitionlawrules • Financial transactions tax

16. Chapter VII: Governance – SelectedTopics • Corporate governance – Basic Principles • Regulation and Supervision III. Regulation of Bankers’ Compensation A. Pre and post-crisis developments B. Balanced Scorecards and Management Incentives C. Contingent convertible bonds (CoCos)

17. READING MATERIAL • Slides will be posted ahead of the corresponding class on my wordpress website: francotte.wordpress.com.

18. READING MATERIAL – Cont’d • Reading material will be identified (general and per topic; mandatory and optional). • You are expected to read before the relevant class: • the slides posted on my website, • the mandatory reading material (if any), and • if you wish, the optional material.

19. READING MATERIAL- Cont’d • Basic textbook for the course is: • F. Mishkin, C. Bordes, PC. Hautcoeur, D. Lacoue-Labarthe et X. Ragot, Monnaie, banque et marchés financiers, (2010), edited by Pearson. NB: this textbook is in French but was chosen because it covers also the European financial sector. For the US financial sector, you can use instead Mishkin’s textbook in English if you wish: • The Economics of Money, Banking and Financial Markets, (9th edition), edited by Pearson.

20. CLASSES • Wednesdays from 8:00 to 10:00. • Auditorium: R.42.5.107 • Starts on September 19 and ends on December 12. • No class on November 7. • Attendance to class is necessary for proper understanding, as not all points can be covered in reading material or slides.

21. CLASSES – Cont’d • Bonus points for exam can be obtained for research and presentation to class on selected topics (from zero to 2 points depending on quality of work). • Optional. • Detailswillbegiven in class.

22. EXAMS • Exam in January. • In English. • Details will be communicated by end November.

23. FOR REFERENCE • Please interact during classes: ask questions (there is NO stupid question) and express (thoughtful) views. • You can reach me between classes if need be at • pfrancot@ulb.ac.be or pierre.l.francotte@gmail.com • Make sure to be clear about what you expect from me and by when (within reason) if you want to get a timely feedback.