In the recent financial crisis, public authorities could not rely on models of financial stability for their regulatory interventions. Our mission is to develop research and advanced teaching on financial stability, using four different approaches: economic theory, empirical research, experiments and legal research. Banking, Liquidity and Financial Regulation also investigates in important traditional areas such as interbank money markets, and develops new concepts to accompany the trend of increased competition and consumer protection in investment services.
Exemplary project: Capital Regulation and Credit Fluctuations (J.-C. Rochet, H. Gersbach)
The implementation of counter-cyclical capital ratios is a central theme of macroprudential regulation. This term characterizes the approach to financial regulation aimed to mitigate the risk of the financial system as a whole (or systemic risk). In the aftermath of the recent financial crisis, there is a growing consensus among policymakers and economic researchers about the need to re-orient the regulatory framework towards a macroprudential perspective.
In a recent theoretical work, we provide a rationale for imposing counter-cyclical capital ratios on banks. Such ratios have recently been activated in Switzerland. They are meant to dampen credit cycles which are characterized by an excessive fluctuation of bank credits, output, asset prices or wages. Imposing a (stricter) capital ratio in booms increases expected output and can be beneficial to all agents in the economy. Our findings show that counter-cyclical capital ratios are indeed an effective stabilization tool.
Selected research projects and programs
- University Research Priority Program "Financial Market Regulation" (J.-C. Rochet, T. Hens)
- Behavior in Markets and Market Design
- Behavioral Finance (T. Hens)
- Risk Management after the Crisis (J.-C. Rochet)
- Systemic Risk and Dynamic Contract Theory (J.-C. Rochet)
Connections to courses
Banking, Liquidity and Financial Regulation addresses students who are interested in the analysis of problems related to financial (in-)stability. This issue can be addressed both at the individual (micro) level (e.g. proper risk management within the firm) as well as the (global) macro level (e.g. macroprudential regulation aimed at mitigating systemic risk). In the aftermath of the financial crisis, there is a clear need for people to address and understand the relevant but complex topic of “financial stability”. Students who focus on this area get the education necessary to work for the banking industry, for regulators (such as FINMA or the Swiss National Bank) as well as for international organizations (such as BIS, IMF, OECD). The following list provides examples of courses particularly related to Banking, Liquidity and Financial Regulation.
List of courses
More detailed information on each module can be found by copying the 8-digit code into the search field of the University’s course catalogue.
|Banking Game: Gesamtführung einer Bank||BOEC0068|
|Verantwortung in den Finanzmärkten - eine interdisziplinäre Perspektive||BOEC0321|
|Startup Seminar Banking & Finance 2.0||BOEC0325|
|Banking: Structured Products||BOEC0094|
|Banking: Regulation and Supervision||BOEC0206|
|Game Theory: Applications to Banking and Finance||BOEC0302|
|Fixed Income Markets||BOEC0208|
|ME2: Microeconomic Theory of the Firm||MOEC0203|
|Seminar in Information Economics and Contract Theory||MOEC0377|
|Groups in Economic Decision-Making||MOEC0304|
|Behavioral Finance and Private Banking||MOEC0209|
|History of Economics and Banking||MFOEC164|
|Theory of Banking and Financial Intermediation||MFOEC142|
|Krisen und Krisenmanagement in Europa||MOEC0369|
|Advanced Microeconomics: Mechanism Design||DOEC0320|
|Research Seminar in Contract Theory and Banking||DOEC0443
Any interested doctoral student can also take advantage of the advanced PhD courses offered by the Swiss Finance Institute at various research institutions across Switzerland.
Faculty members involved
The following Faculty members research and/or teach in Banking, Liquidity and Financial Regulation.