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Financial Intermediation

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Course Description

The central role financial intermediaries play in modern economies was again brought into focus by the financial crisis of 2008, and the subsequent severe recession.  Financial economists have long been interested in better understanding their function.  What do financial intermediaries do?  How do they create, or extract, value?  Why is compensation in this sector of the economy so extraordinary?  How do their incentives enhance or endanger economic stability? (RG- 312)


This course will attempt to address these questions.  We will review the history of the evolution of the financial system, and study classic models of intermediation and financial crises.  We will consider models and empirical studies of very simple and transparent types of intermediaries such as mutual funds and broker-dealers in OTC markets.  The focus will be on helping future managers make informed choices when they deal with financial intermediaries, as they all must, and on helping us as citizens better understand the policy choices we face in regulating the financial sector.


Class time will be divided between lectures and class discussions of some specific problems or topics. Evaluation will be based on class participation, a research paper required of each student, and a take-home final exam.


Lecture: 100min/wk and Recitation: 50min/wk