Run by Bangor Business School

15.000 Credits or 7.500 ECTS Credits

Semester 1

Organiser: Prof Jonathan Williams

We provide comprehensive analysis of international banking. The module identifies key relationships between financial development and economic growth; the role of the state and politics in banking; what international banking is its evolution through time. With globalisation shaping how international banks behave and operate, we assess how banks decide which markets to enter, how they reach their clients, and how they perform. Given repeated incidence of market failures, we critically evaluate financial crises and changes to the regulatory architecture that is expected to reduce the future probability of crises.

The content of the module may include but will not be limited to: Finance development and economic growth Evolution of international banking International financial centres Country risk analysis Location decision Global M&A Syndicated lending Foreign bank performance Financial crises and bank regulation.

threshold

A basic knowledge of course material.

good

In addition to the above, an ability to write analytically on specific issues

excellent

In addition to the above, the ability to illustrate and enhance arguments and analyses through the use of relevant supporting evidence drawn from the established literature.

1. Critically evaluate the risks facing international banks.

2. Analyse why, where and how banks go abroad and evaluate outcomes.

3. Examine cases of market failure in international banking and critically evaluate policies used to resolve those crises.

4. Explain and assess the impact of internationalisation on bank performance.

5. Discuss the emergence and evolution of international banking.

Type	Name	Description	Weight
	Group work		25.00
	Examination		75.00

		Hours
Workshop	A 1 hour workshop per week.	10
Lecture	One 2-hour lecture per week.	20
Private study	To review lecture materials, read around topics, and reflect.	120

• Literacy - Proficiency in reading and writing through a variety of media
• Self-Management - Able to work unsupervised in an efficient, punctual and structured manner. To examine the outcomes of tasks and events, and judge levels of quality and importance
• Exploring - Able to investigate, research and consider alternatives
• Information retrieval - Able to access different and multiple sources of information
• Inter-personal - Able to question, actively listen, examine given answers and interact sentistevely with others
• Critical analysis & Problem Solving - Able to deconstruct and analyse problems or complex situations. To find solutions to problems through analyses and exploration of all possibilities using appropriate methods, rescources and creativity.
• Presentation - Able to clearly present information and explanations to an audience. Through the written or oral mode of communication accurately and concisely.
• Teamwork - Able to constructively cooperate with others on a common task, and/or be part of a day-to-day working team
• Argument - Able to put forward, debate and justify an opinion or a course of action, with an individual or in a wider group setting
• Self-awareness & Reflectivity - Having an awareness of your own strengths, weaknesses, aims and objectives. Able to regularly review, evaluate and reflect upon the performance of yourself and others
• Leadership - Able to lead and manage, develop action plans and objectives, offer guidance and direction to others, and cope with the related pressures such authority can result in

• knowledge of theories and empirical evidence concerning financial management, risk and the operation of capital markets (in cases of degrees with significant finance content).
• Abstraction. From the study of economic principles and models, students see how one can abstract the essential features of complex systems and provide a useable framework for evaluation and assessment of the effects of policy or other exogenous events. Through this, the typical student will acquire proficiency in how to simplify while still retaining relevance. This is an approach that they can then apply in other contexts, thereby becoming more effective problem-solvers and decision-makers.
• Analysis, deduction and induction. Economic reasoning is highly deductive, and logical analysis is applied to assumption-based models. However, inductive reasoning is also important. The development of such analytical skills enhances students' problem-solving and decision-making ability.
• Quantification and design. Data, and their effective organisation, presentation and analysis, are important in economics. The typical student will have some familiarity with the principal sources of economic information and data relevant to industry, commerce, society and government, and have had practice in organising it and presenting it informatively. This skill is important at all stages in the decision-making process.
• Framing. Through the study of economics, a student should learn how to decide what should be taken as given or fixed for the purposes of setting up and solving a problem, i.e. what the important 'parameters' are in constraining the solution to the problem. Learning to think about how and why these parameters might change encourages a student to place the economic problem in its broader social and political context. This 'framing' skill is important in determining the decision-maker's ability to implement the solutions to problems.
• An appreciation of the nature of the contexts in which finance can be seen as operating, including knowledge of the institutional framework necessary for understanding the role, operation and function of markets and financial institutions (e.g. the economic, legal, regulatory and tax environment, both national and international; the firm; the capital markets and the public sector).
• A knowledge of the major theoretical tools and theories of finance, and their relevance and application to theoretical and practical problems (e.g. concept of arbitrage and examples of its use; financial mathematics and capital budgeting criteria; informational efficiency; optimal risk sharing; portfolio theory; asset pricing models and the valuation of securities; cost of capital; derivative pricing; risk management; information asymmetry; principal agency relationships; signalling; Fisher separation and capital budgeting criteria; behavioural finance; term structure and the movement of interest rates; determination of exchange rates and financial intermediation).
• An ability to interpret financial data including that arising in the context of the firm or household from accounting statements and data generated in financial markets. The interpretation may involve analysis using statistical and financial functions and procedures such as are routinely available in spreadsheets (eg Microsoft Excel) and statistical packages. It may assume the skills necessary to manipulate financial data and carry out statistical and econometric tests (e.g. estimation and interpretation of asset pricing models; financial modelling and projections; event studies and residuals analysis; elements of time series analysis, such as serial correlation mean reversion, and stochastic volatility).
• An understanding of the relationship between financial theory and empirical testing, and application of this knowledge to the appraisal of the empirical evidence in at least one major theoretical area. The appraisal should involve some recognition of the limitation and evolution of empirical tests and theory (eg the efficient markets hypothesis; anomalies; pricing of derivatives and other securities; bond portfolio management; exchange rates; raising capital and capital structure).
• An understanding of the financing arrangements and governance structures of business entities, and an appreciation of how theory and evidence can be combined to assess the effectiveness and efficiency of such arrangements (e.g. decisions as to sources of finance and financial structure; the pricing of corporate securities; the market for corporate control; corporate governance structures and mechanisms; financial planning and international dimensions of finance).
• An understanding of the factors influencing the investment behaviour and opportunities of private individuals (bonds, equities, and derivatives; risk aversion; risk/return trade-offs; portfolio management and performance measurement; pensions and long term savings; the tax treatment of savings and investments; international diversification; forex risk; objectives of and constraints on institutional investors and advisors).
• An understanding of financial service activity in the economy, and an appreciation of how finance theory and evidence can be employed to interpret these services (for example, information asymmetry, adverse selection and moral hazard could be employed to analyse the fundamental nature of services, such as insurance, pensions, bank lending and consumer credit, and also explore fundamental problems arising in such financial service provision. Efficient market hypothesis could be used to explore evidence for fund manager performance and the effectiveness of equity and bond saving services).
• An ability to understand financial statements, and a basic appreciation of the limitations of financial reporting practices and procedures (eg financial statement analysis; the relation between cash flow accounting and accrual accounting; discretionary accounting practices).
• Problem solving and critical analysis: analysing facts and circumstances to determine the cause of a problem and identifying and selecting appropriate solutions.
• Research: the ability to analyse and evaluate a range of business data, sources of information and appropriate methodologies, which includes the need for strong digital literacy, and to use that research for evidence-based decision-making.
• Numeracy: the use of quantitative skills to manipulate data, evaluate, estimate and model business problems, functions and phenomena.
• Ability to work with people from a range of cultures.
• Conceptual and critical thinking, analysis, synthesis and evaluation.
• Self-management: a readiness to accept responsibility and flexibility, to be resilient, self-starting and appropriately assertive, to plan, organise and manage time.
• Self reflection: self-analysis and an awareness/sensitivity to diversity in terms of people and cultures. This includes a continuing appetite for development.

Resource implications for students

None.

Reading list

LECTURE SCHEDULE AND READINGS Financial development and economic growth ** Levine, R., 2004. Finance and growth: theory and evidence. NBER Working Paper No. 10766. * King, R.G., Levine, R., 1993. Finance and growth: Schumpeter might be right. Quarterly Journal of Economics 108, 717-737. Levine, R., 2003. More on finance and growth: more finance, more growth? FRB St Louis Review 85, 4, 31-46. * Beck, T., Demirgüç-Kunt, A., Levine, R., 2003. Law and finance: Why does legal origin matter? J. of Comparative Economics 31, 4, 653-675. * Beck, T., Demirgüç-Kunt, A., Levine, R., 2003. Law, endowments, and finance. J. Financial Economics 70, 2, 137-181. * Çihák, M., Demirgüç-Kunt, A., Feyen, E., Levine, R., 2013. Financial development in 205 economies, 1960 to 2010. NBER Working Paper 18946. Çihák, M., Demirgüç-Kunt, A., Feyen, E., Levine, R., 2012. Benchmarking financial systems around the world, Policy Research Working Paper, World Bank. Easterly, W., Levine, R., 2012. The European origins of economic development. NBER Working Paper 18162. Bekaert, G., Harvey, C.R., 1998. Capital markets: an engine for economic growth. The Brown Journal of World Affairs, Winter/Spring, 33-53. Levine, R., Zervos, S., 1998. Stock markets, banks, and economic growth. American Economic Review 88, 537–558.

Market structure and competition Berger, A.N., 1995. The profit-structure relationship in banking: Tests of market power and the efficient structure hypotheses. J. Money, Credit and Banking 27, 2, 404-31. Williams, J., 2012. Efficiency and market power in Latin American banking. J. Financial Stability 8, 263-276. Koetter, M., Kolari, J., Spierdijk, L., 2012. Enjoying the quiet life under deregulation? Evidence from adjusted Lerner indices for U.S. banks. Review of Economics and Statistics 94, 2, 462-480. Turk-Ariss, R., 2010. On the implications of market power in banking: Evidence from developing countries. J. Banking and Finance 34, 765-775. ** Berger, A.N., Klapper, L.F., Turk-Ariss, R., 2009. Bank competition and financial stability. Journal of Financial Services Research 35, 99-118. * Schaeck, K., Çihák, M., 2014. Competition, efficiency, and stability in banking. Financial Management, Spring, 215-241. Degryse, H.,Ongena, S., 2007. Competition and Regulation in the Banking Sector: A Review of the Empirical Evidence on the Sources of Bank Rents. Working paper. Northcott, C.A., 2004. Competition in Banking: A Review of the Literature. Bank of Canada Working Paper 2004-24. Claessens, S., Laeven, L., 2004. What Drives Bank Competition? Some International Evidence. Journal of Money, Credit, and Banking, 36, 563-583. Schaeck, K., Çihák, M., Wolfe, S., 2009. Are competitive banking systems more stable? Journal of Money, Credit and Banking 41, 4, 711-734. Beck, T., de Jonghe, O., Schepens, G., 2013. Bank competition and stability: Cross-country heterogeneity. Journal of Financial Intermediation 22, 218-244. Carletti, E., Hartmann, P., 2002. Competition and stability: What’s so special about banking? European Central Bank Working Paper Series, No. 146, May. Berger, A.N., Hannan, T.H., 1998. The efficiency cost of market power in the banking industry: A test of the “quiet life” and related hypotheses. The Review of Economics and Statistics LXXX, 3, 454-465. Boyd, J.H., De Nicolò, G., 2005. The theory of bank risk taking and competition revisited. J. Finance 60, 3, 1329-1343. Maudos, J. de Guevara, J.F., 2007. The cost of market power in banking: social welfare loss vs. cost inefficiency. J. Banking and Finance 31, 2103-2125.

International banking and international financial centres ** The Global Financial Centres Index 21, 2017. * Casu, B., Girardone, C., Molyneux, P., Introduction to Banking. FT Prentice Hall, 2015. Ch. 4 * Aliber, R.Z., 1984. International banking: A survey. J. Money, Credit and Banking 16, 4, 661-695. Hughes, J.E., MacDonald, S.B., 2002. International Banking: Text and Cases (Addison-Wesley). Chs 2, 7, 4-6, 8, 15. Abraham, J-P et al., 1993. The Competitiveness of European International Financial Centres. Institute of European Finance Research Monographs in Banking and Finance, M93/1, (UCNW: Bangor). McCauley, R.N., Ruud, J.S., Wooldridge, P.D., 2002. Globalising international banking. BIS Quarterly Review, March, 41-51. Matthews, K., Thompson, J., 2008. The Economics of Banking. John Wiley, Ch. 5 * Smith, R.C. & I. Walter, 1997. Global Banking, (Oxford University Press), Ch. 2

Country risk analysis and the location decision Smith, R.C. & I. Walter, 1997. Global Banking, (Oxford University Press). Chapter 5. Errico, L. and A. Musalem, 1999. Offshore banking: an analysis of micro- and macro-prudential issues. IMF Working Paper, WP/99/5. Berger, A.N., Dai, Q., Ongena, S., Smith, D.C., 2003. To what extent will the banking industry be globalized? A study of bank nationality and reach in 20 European nations. J. Banking and Finance 27, 383-415. Claessens, S., Van Horen, N., 2014. Location decisions of foreign banks and competitor remoteness. Journal Money, Credit and Banking 46, 1, 145-170. * Focarelli, D., Pozzolo, A.F., 2005. Where do banks expand abroad? An empirical analysis. J. Business 78, 61, 2435-2463. Hughes, J.E. & S.B. MacDonald, 2002. Int’l. Banking: Text and Cases (Addison-Wesley). Ch 14. Berger, A.N., 2007. Obstacles to a global banking system: “Old Europe” versus “New Europe”. J. Banking and Finance 31, 1955-1973. Berger, A.N., 2007. International comparisons of banking efficiency. Financial Markets, Institutions and Instruments 16, 3, 119-144. Buch, C.M., DeLong, G.L. 2001. Cross-border bank mergers: What lures the rare animal? Kiel Institute of World Economics, Working Paper No. 1070. Focarelli, D., Pozzolo, A.F., 2001. The patterns of cross-border bank mergers and shareholdings in OECD countries. J. Banking and Finance 25, 2305-2337.

Diversification and M&A in global banking Casu, B., Dontis-Charitos, P., Staikouras, S., Williams, J., 2015. Diversification, size and risk: the case of bank acquisitions of nonbank financial firms. European Financial Management, 22, 2, 235-275, 2016. Williams, J., Liao, A., 2008. The search for value: Cross-border bank M&A in emerging markets. Comparative Economic Studies 50, 274-296. Buch, C.M., DeLong, G.L. 2010, 2015. Banking globalization: International consolidation and mergers in banking, in: Berger, A.N., Molyneux, P., Wilson, J.O.S. (Eds.), The Oxford Handbook of Banking. Oxford University Press, Chapters 20 and 31. Stiroh, K.J., 2010, 2015. Diversification in banking, in: Berger, A.N., Molyneux, P., Wilson, J.O.S. (Eds.), The Oxford Handbook of Banking. Oxford University Press, Chapters 6 and 9. ** Cardias Williams, F., Williams, J., 2008. Does ownership explain bank M&A? The case of domestic and foreign banks in Brazil. In P. Arestis and L.F. de Paula (eds), Financial Liberalization and Economic Performance in Emerging Countries, Palgrave Macmillan, 194-216. Morrison, A.D., 2010, 2015. Universal banking. In Berger, A., Molyneux, P. and Wilson, J. (eds) The Oxford Handbook of Banking (Oxford University Press). Chapters 7 and 5. DeYoung, R., Evanoff, D., & Molyneux, P., 2009. Mergers and acquisitions of financial institutions: A review of the post-2000 literature. J. Financial Services Research, 36, 87-110. Berger, A.N., Hasan, I., Korhonen, I., & Zhou, M., 2010a. Does diversification increase or decrease bank risk and performance? Evidence on diversification and the risk-return trade-off in banking. BOFIT Discussion Papers 9. Berger, A.N., Hasan, I., & Zhou, M., 2010b. The effects of focus versus diversification on bank performance: Evidence from Chinese banks. J. Banking and Finance, 34, 1417-1435. Baele, L., De Jonghe, O., & Vander Vennet, R., 2007. Does the stock market value bank diversification? J. Banking and Finance, 31, 1999-2023. Acharya, V.V., Hasan, I., & Saunders, A., 2006. Should banks be diversified? Evidence from individual bank loan portfolios. J. Business, 79, 1355-1412.

Syndicated lending De Haas, R., Van Horen, N., 2012. Running for the exit? International bank lending during a financial crisis. Review of Financial Studies, doi:10.1093/rfs/hhs113. Gadanecz, B., Tsatsaronis, K., Altunbaş, Y., 2008. External support and bank behaviour in the international syndicated loan market. BIS Working Papers, No. 265, November. Gadanecz, B., 2004. The syndicated loan market: structure, development and implications. BIS Quarterly Review, December 75-90. Altunbaş, Y., Gambacorta, L., Marqués-Ibanez, D., 2010. Large debt financing: syndicated loans versus corporate bonds. ** Eichengreen, B., Mody, A., 2000. Lending booms, reserves and the sustainability of short-term debt: inferences from the pricing of syndicated bank loans. J. Development Economics 63, 5-44. De Hass, R., Van Horen, N., 2012. International shock transmission after the Lehman Brothers collapse: Evidence from syndicated lending. American Economic Review: Papers and Proceedings, 102, 3, 231-237. Chui, M., Domanski, D., Kugler, P., Shek, J., 2010. The collapse of international bank finance during the crisis: evidence from syndicated loan markets. BIS Quarterly Review, September, 39-49 Altunbaş, Y., Gambacorta, L., Marqués, D., 2007. Securitisation and the bank lending channel. ECB Working Paper, No. 838, November

The performance of foreign banks Claessens, S., Van Horen, N., 2013. Foreign banks: Trends and impact. J. Money, Credit and Banking 46, 1, 295-326. Berger, A.N., DeYoung, R., Genay, H., Udell, G.F., 2000. Globalisation of Financial Institutions: Evidence from Cross-Border Banking Performance. Brookings-Wharton Papers on Financial Services 3, 23-158. Claessens, S., Demirgüç-Kunt, A., Huizinga, H., 2001. How does foreign entry affect domestic banking markets? J. Banking and Finance 25, 5, 891-911. Buch, C.M., Koch, C.T., Koetter, M., 2014. Should I stay or should I go? Bank productivity and internationalization decisions. Journal of Banking and Finance 42, 266-282. Jeon, B.N., Olivero, M.P., Wu, J., 2011. Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets. J. Banking and Finance 35, 856-875. Fang, Y., van Lelyveld, I., 2014. Geographic diversification in banking. J. Financial Stability 15, 172-181. Van Horen, N., 2007. Foreign banking in developing countries; origin matters. Emerging Markets Review 8, 81-105. Claessens, S., Van Horen, N., 2012. Being a foreigner among domestic banks: Asset or liability? J. Banking and Finance 36, 1276-1290. De Haas, R., van Lelyveld, I., 2010. Internal capital markets and lending by multinational banks subsidiaries. J. Financial intermediation 19, 1-25. De Haas, R., van Lelyveld, I., 2014. Multinational banks and the global financial crisis: Weathering the perfect storm? J. Money, Credit and Banking 46, 1, 333-364.

The international debt crisis and the Asian crisis Cline, W.R., 1995. International Debt Re-Examined. Chapter 5. Corsetti, G., Pesenti, P., Roubini, N., 1998. ‘What caused the Asian currency and financial crisis? Part I: a macroeconomic overview; Part II: the policy debate. NBER Working Paper Nos. 6833 and 6834. Radelet, S., Sachs, J., 1998. The East Asian financial crisis: diagnosis, prospects, remedies. Harvard Institute for International Development. Or Brookings Papers on Economic Activity, 1, 1-90. Radelet, S., Sachs, J., 1998. The onset of the East Asian financial crisis. Harvard Institute for International Development. Or NBER Working Paper No. 6680. Currie, C., 1998. The Optimum Regulatory Model for the Next Millennium - lessons from international comparisons and the Australian-Asian experience. In Gup, B. (ed) New Financial Architecture for the 21st Century, (Quorum/Greenwood Books, November, 2000) ISBN 1-567200-341-8 Krueger, A., 1998. Whither the World Bank and the IMF? J. Economic Literature, Vol. XXXVI, December, 1983-2020. Chang, R., Velasco, A., 2002. The 1997-98 liquidity crisis: Asia versus Latin America. In L. Hernández and K. Schmidt-Hebbel (eds) Banking, Financial Integration, and International Crises (Central Bank of Chile). Hughes, J.E. & S.B. MacDonald (2002), International Banking: Text and Cases (Addison-Wesley). Ch 14.

The global financial crisis and bank regulation * Basel Committee on Banking Supervision, 2010. The Basel Committee’s response to the financial crisis: report to the G20. October. Chow, J.T.S., & Surti, J., 2011. Making banks safer: Can Volcker and Vickers do it? IMF Working Paper, WP/11/236. Gambacorta, L., van Rixtel, A., 2013. Structural bank regulation initiatives: approaches and implications. BIS Working Papers No 412. * Mayer Brown (2014). Does Volcker + Vickers = Liikanen? Legal Update, February 2014. * Obstfeld, M., Rogoff, K., 2009. Global imbalances and the financial crisis: Products of common causes. Asia Economic Policy Conference, Federal Reserve Bank of San Francisco, October 19-20, 2009. * Mishkin, F.S., 2016. The Economics of Money, Banking, and Financial Markets. Eleventh Edition, Global Edition. Pearson. Chapter 12. Barth, J.R., Caprio, J., Levine, R. Bank regulation and supervision in 180 countries from 1999 to 2011.http://faculty.haas.berkeley.edu/ross_levine/papers/Bank_Regulation_and_Supervision_Around_the_World_15JAN2013.pdf Caprio, G., Demirgűç-Kunt, A., Kane, A.J., 2008. The 2007 meltdown in structured securitization: searching for lessons, not scapegoats. World Bank Policy Research Working Paper No. 4756. Gorton, G., 2009. The subprime crisis. European Financial Management, 15, 10-46.

Compulsory in courses:

• N3CH: MA Banking & Finance (Chartered Banker) year 1 (MA/BFCB)
• N3DC: MA Bank & Fin (Chart Bank) (with Incorporated Pre-Masters) year 1 (MA/BFCB1)
• N3AD: MBA Banking and Finance year 1 (MBA/BIF)
• N3DG: MBA Banking and Finance (with Incorporated Pre-Masters) year 1 (MBA/BIF1)
• N3BM: MBA Islamic Banking and Finance year 1 (MBA/IB)
• N3DK: MBA Islamic Banking & Finance (with incorp pre-Masters) year 1 (MBA/IB1)
• N4AK: MSc Accounting and Banking year 1 (MSC/ACB)
• N4AN: MSc Accounting and Banking (with Incorporated Pre-Masters) year 1 (MSC/ACB1)
• N3AX: MSc Banking and Finance year 1 (MSC/BANKFIN)
• N3CK: MSc Banking & Finance (Chartered Banker) year 1 (MSC/BFCB)
• N3CW: MSc Bank & Fin (Chartered Banking) (with Incorp Pre-Masters) year 1 (MSC/BFCB1)
• N3DX: MSc Banking (Chartered Banker) year 1 (MSC/BKCB)
• N3CS: MSc Banking and Finance (with Incorporated Pre-Masters) year 1 (MSC/BKFIN1)
• N3BF: MSc Islamic Banking and Finance year 1 (MSC/IBF)
• N3CZ: MSc Islamic Banking & Fin (with Incorporated Pre-Masters) year 1 (MSC/IBF1)