• Explain how Central Banks conduct monetary policy under regular economic conditions and their expanded role during economic crises (financial crisis of 2008-2009 and pandemic of 2020)
• Calculate interest rates on traditional banking products by applying cost/plus framework
• Calculate key financial ratios based on bank financial statements
• Analyze business models of newly formed companies in financial services industry and estimate their value
• Examine the impact of product innovation and regulation in financial services industry

This course will analyze the main functions of banks and other financial institutions and review recent developments in the financial services industry. We will examine the functions performed by incumbent players in the following segments: extension of credit to businesses and consumers, payment processing, money management, and investment banking; we will also analyze new industry players – fintech companies that are using digital technologies and big data to disrupt traditional players’ business models. Potential market size, product pricing and profitability of the new players will be evaluated. Students will be presented with real data from the industry to develop analytics/research skills.  
 

It is assumed that students have good working knowledge of the basic theoretical and practical concepts of economics, accounting, and finance. The course is intended not only for those interested in careers within financial institutions, but also for those who wish to extend their institutional and industry specific knowledge.

Precourse activity:

Submit Entry Quiz - checking on basic accounting and finance knowledge; answer key and solutions will be provided; 
Class 1: Financial institutions and their functions - introduction; Analyzing bank financial statements.
Class 2: History of the U.S. banking industry; Case: The U.S. Banking Panic of 1933 and Federal Deposit Insurance
Class 3: Central Banking - Federal Reserve System; Monetary Policy and Its Tools;
Class 4: Key risks in the business of banking. Case: The Sudden Implosion of Silicon Valley Bank. 

Class 5: Traditional lending and product pricing; Case: Santa Fe Trading Company;
Class 6: Innovations in lending and alternative finance (fintech); Case: Lending Club;
Feedback activity: during the course students will be asked to complete several homework assignments - answer key and solutions will be provided; questions on homework assignments will be in the same format as on the final examination;
Class 7: Payment function: from the bill of exchange to Visa/MasterCard to Bitcoin
Class 8: Investments and money management; Case: Betting on Failure: Profiting from Defaults on Subprime Mortgages
Class 9: Review of investment banking segment; Case: The Tip of the Iceberg: JP Morgan Chase and Bear Stearns
Class 10: Regulation of financial industry; course review

• Methodology
• Models

• Data collection
• Analysis
• Discussion, critical reflection, modelling

6-week course.

Precourse activity:

The course coordinator uploads the precourse activity on Canvas at the end of May. It is expected that students participate as it will be included in the final exam, but the assignment is without independent assessment and grading

Mandatory readings

Lecture Notes:

will be posted on Canvas

Cases:
1. The U.S. Banking Panic of 1933 and Federal Deposit Insurance (HBS Case #9-799-077: Rev. January 23, 2008).

2. The Sudden Implosion of Silicon Valley Bank. UV8805, Oct 31, 2023
3. Santa Fe Trading Company (link on class website)
4. Lending Club: Time to Join? (HBS Case #9-214-046), November 14, 2014
5. Betting on Failure: Profiting from Defaults on Subprime Mortgages (Case KEL880), Jan. 5, 2015
6. The Tip of the Iceberg: JP Morgan Chase and Bear Stearns (A), Nov. 21, 2011

Notes:
1. HBS #9-291-026 Note on Bank Loans, Rev. October 29, 1993
2. HBS#9-902-168: History of Investment Banking, January 16, 2002
 

Cases and background notes can be purchased at Harvard Business Publishing:

https:/​/​hbsp.harvard.edu/​import/​1218247

Additional relevant readings:

The following articles are available from the Bank of England web site:

• Money in the modern economy: an introduction. By Michael McLeay, Amar Radian and Ryland Thomas. Bank of England Quarterly Bulletin, 2014 Q1
• Money creation in the modern economy. By Michael McLeay, Amar Radia and Ryland Thomas. Bank of England Quarterly Bulletin, 2014 Q1
• Innovations in payment technologies and the emergence of digital currencies. By Robleh Ali, John Barrdear, Roger Clews and James Southgate Bank of England Quarterly Bulletin, 2014 Q3
• The economics of digital currencies. By Robleh Ali, John Barrdear, Roger Clews and James Southgate. Bank of England Quarterly Bulletin, 2014 Q3
• Investment banking: linkages to the real economy and the financial system. By Kushal Balluck, Bank of England Quarterly Bulletin, 2015 Q1
• Stress testing of banks: an introduction. By Kleran Dent and Ben Westwood. Bank of England Quarterly Bulletin, 2016 Q3
• Bank capital and liquidity. By Marc Farag and Damian Harland. Bank of England Quarterly Bulletin, 2013 Q3