Students

ECON2035 – The Economics of Financial Institutions

2025 – Session 2, In person-scheduled-weekday, North Ryde

General Information

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Unit convenor and teaching staff Unit convenor and teaching staff Unit Convenor & Lecturer
Ha Vu
ha.vu@mq.edu.au
Room 429 4 Eastern Road
Wednesday 1:00 - 2:30pm and by appointment
Credit points Credit points
10
Prerequisites Prerequisites
(ECON1020 or ECON111) and (ECON1021 or ECON110)
Corequisites Corequisites
Co-badged status Co-badged status
Unit description Unit description

This unit provides an overview of current operations of the Australian and global financial systems and the management of financial institutions. The unit also covers financial sector crises and the lessons learnt. Topics may include the objectives and performance of financial institutions, risks and their controls, asset and liability management, credit evaluation, capital adequacy and regulations, informal money lenders and microfinance institutions, and shadow banking.

Important Academic Dates

Information about important academic dates including deadlines for withdrawing from units are available at https://www.mq.edu.au/study/calendar-of-dates

Learning Outcomes

On successful completion of this unit, you will be able to:

  • ULO1: Identify and describe the operation and management of banks and other types of financial institutions.
  • ULO2: Identify, define and analyse problems associated with financial markets and recommend creative solutions within real-world contexts.
  • ULO3: Demonstrate a capacity to work independently, including the ability to research, form challenging and coherent arguments, and write short-discussion pieces.

General Assessment Information

Late Assessment Submission Penalty:

Unless a Special Consideration request has been submitted and approved, a 5% penalty (of the total possible mark) will be applied each day a written assessment is not submitted, up until the 7th day (including weekends). After the 7th day, a grade of ‘0’ will be awarded even if the assessment is submitted. Submission time for all written assessments is set at 11.55pm. A 1-hour grace period is provided to students who experience a technical concern.  For any late submissions of time-sensitive tasks, such as scheduled tests/exams, performance assessments/presentations, and/or scheduled practical assessments/labs, students need to submit an application for Special Consideration.

Assessment Tasks

Name Weighting Hurdle Due
Skills Development: Critical Thinking 20% No 11:55pm Tuesday 16 September 2025 (Week 8)
Professional Practice: Financial Analysis 30% No 11:55pm Tuesday 21 October 2025 (Week 11)
Formal and Observed Learning: Exam 50% No During the University Examination Period

Skills Development: Critical Thinking

Assessment Type 1: Presentation
Indicative Time on Task 2: 20 hours
Due: 11:55pm Tuesday 16 September 2025 (Week 8)
Weighting: 20%

 

The purpose of this assessment is for you to work collaboratively and develop expertise in crafting solutions to real-world related issues. You will work in teams to examine real-world scenarios and produce and submit a video presentation in which all group members must present a part.

Skills in focus:

  • Critical thinking
  • Communication skills
  • Digital skills
  • Collaboration
  • Work readiness

Deliverable: Presentation (max. 10 min per student) via video submission.

This is a group assessment.

 
On successful completion you will be able to:
  • Identify and describe the operation and management of banks and other types of financial institutions.
  • Identify, define and analyse problems associated with financial markets and recommend creative solutions within real-world contexts.
  • Demonstrate a capacity to work independently, including the ability to research, form challenging and coherent arguments, and write short-discussion pieces.

Professional Practice: Financial Analysis

Assessment Type 1: Case study/analysis
Indicative Time on Task 2: 25 hours
Due: 11:55pm Tuesday 21 October 2025 (Week 11)
Weighting: 30%

 

The purpose of this assessment is for you to practice how to investigate issues related to the financial industry, and to construct a persuasive argument.  You will work independently to express your discipline understanding as well as to apply the knowledge in real-world scenarios.

Skills in focus:

  • Problem solving
  • Critical thinking
  • Communication skills
  • Discipline knowledge
  • Work readiness

Deliverable: Written Submission (max 1,600 words).

This is an individual assessment.

 
On successful completion you will be able to:
  • Identify and describe the operation and management of banks and other types of financial institutions.
  • Identify, define and analyse problems associated with financial markets and recommend creative solutions within real-world contexts.
  • Demonstrate a capacity to work independently, including the ability to research, form challenging and coherent arguments, and write short-discussion pieces.

Formal and Observed Learning: Exam

Assessment Type 1: Examination
Indicative Time on Task 2: 40 hours
Due: During the University Examination Period
Weighting: 50%

 

The purpose of this assessment is for you to demonstrate the expertise you have gained in this unit. You will participate in a 2-hour, on campus, closed-book exam held during the University Examination period. Important information about the exam will be made available on the unit iLearn page.

You should also review the MQ Exams website for general tips: https://students.mq.edu.au/study/assessment-exams/exams.

 
On successful completion you will be able to:
  • Identify and describe the operation and management of banks and other types of financial institutions.
  • Demonstrate a capacity to work independently, including the ability to research, form challenging and coherent arguments, and write short-discussion pieces.

1 If you need help with your assignment, please contact:

  • the academic teaching staff in your unit for guidance in understanding or completing this type of assessment
  • the Writing Centre for academic skills support.

2 Indicative time-on-task is an estimate of the time required for completion of the assessment task and is subject to individual variation

Delivery and Resources

The delivery format of this Unit is as follows:

  1. Two-hour face-to-face (f2f) lecture (on campus) on Wednesday 9 – 11am, at 14SCO T3 Lecture Theatre. The weekly f2f lectures will be live-streamed for the online students as well as be recorded and made available later on ECHO360.
  2. One hour tutorial which can be in person (on campus) or online (via zoom) depending on your class registration. In the tutorial class we will discuss the practice questions which will strengthen your discipline knowledge, improve your critical thinking and problem-solving skills which altogether increase your capability of work readiness.

All materials for the unit, such as the lecture recordings, lecture notes, reading materials, and discussion questions etc will be made available to students on the unit iLearn site at http://ilearn.mq.edu.au. Students are strongly encouraged to check the unit iLearn page weekly for announcements as well as the unit schedule, additional readings, assessment information, and discussion questions.

There is no prescribed textbook for Econ2035. You are highly recommended to check ilearn regularly for the updates of readings posted. 

Recommended texts and books:

(i) Saunders, Anthony et al, Financial Institutions Management : A Risk Management Approach (McGraw-Hill Education, Tenth edition., 2021)

You can access to an online version from the University libarary and here is the link:

https://ebookcentral.proquest.com/lib/MQU/detail.action?docID=6212856

(ii) Calomiris and Haber, 2014, Fragile by Design - The political origins of banking crises and scarce credit

(iii) Anat Admati and Martin Hellwig, 2024, The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It - New and Expanded Edition. You may want to check out some of authors' presentations here:

https://casi.stanford.edu/news/bankers-new-clothes-timely-update-our-fragile-banking-system#:~:text=The%20Bankers'%20New%20Clothes%3A%20What's,of%20law%20and%20democracy%20itself.

Other useful resources: 

www.wsj.com

www.ft.com

www.bloomberg.com

www.theeconomist.com (free access via the University libarary) 

www.rba.gov.au

www.bis.org

Technology Used and Required

iLearn; ECHO360; Programs for Video recording and editing.

Unit Schedule

Week

Lecture

Assessment tasks

1

Topic 1: An Overview of Financial Institutions, Risks and Regulations

This topic will provide you an overview about different types of FIs and what they do, then the types of risks they face, and why banks are regulated.

 

2

Topic 2: Theoretical Rationale of Financial Institutions

In this topic we will look at the theoretical rationale for financial institutions (FIs). In pure economic theory there should be no need for banks or FIs. Traditional theories argue that FIs exist because of transaction costs and asymmetric information. However, the new theory argues that FIs now exist to facilitate risk transfer and reduce participation costs.

 

3

Topic 3: Liability Management

In this topic we will look at the liability side of a bank's balance sheet. In particular, how do banks raise funds and what are the risks associated with raising funds, what strategies do banks use when raising funds, and the future of bank branches.

 

4

Topic 4: Credit risk Management

In this topic we'll first look at banks' lending activities and their loan portfolio. We then examine in details the issue of loan losses and how banks can make loan safely and what sort of system banks have in place to make sure that people they lend to are returning the money.

 

5

Topic 4 (cont)

 

 6

Topic 5: Securities Portfolio Management

In this topic we’ll look at why banks hold securities and what types of securities they hold on their balance sheet, and what are the risks associated with these securities. Then we will look at the post GFC issues regarding the market value of these securities and finally the Volcker rule which prohibits banks from security trading on their own account.

 

7

Topic 6: Interest rate risk Management

We know that in the financial world interest rates (IR) go up and down all the time, affecting a bank’s profitability because the bank has to pay IR on deposit and charges IR on loans. In a moving IR environment, and loans are normally long-term, deposits are short-term, how do banks manage all of that? That is the theme of this topic.

 

8

Topic 7: Liquidity Management

Lesson from the GFC showed us that liquidity can dry up very quickly once a crisis took place because banks did not prudently manage their liquidity in the years immediately before the GFC. Hence, in this topic we'll firstly look at why liquidity is important and the sources of liquidity. Then we will examine the story of liquidity post GFC with a focus on liquidity coverage ratio (LCR), and finally we'll talk about the Australian exception to see how Australian banks can meet this LCR requirement.

Skills Development: Critical Thinking (Group Presentation, 20%)

Due 11:55pm Monday

15 September 2025 (Week 8)

 

9

Topic 8: Capital Management

In this topic, we’ll start by looking at the importance of capital, and the source of capital. Then we will move to the big part of this topic, the regulation one. We’ll begin this section with bank supervision, more specifically who should be the supervisor or regulator. After that we will dig into the Basel core principles on capital (Basel I, Basel II, and Basel III).

 

10

Topic 8 (cont)

 

11

Topic 9: Financial Institutions in Less Developed countries

In this topic we'll revisit the importance of FIs but with a focus on less-developed countries. More specifically we'll look at the role of FIs and economic development, by examining the problems in LDCs financial sector and some solutions to resolve these problems. We will also look at some informal FIs such as money lenders, and the problems associated with these informal financial intermediaries. Then we will look at microfinance, a type of banking service that is provided to poor people. It is believed that microfinance is a means to alleviate poverty.

Professional Practice (individual task, 30%)

Due 11:55pm Monday

20 October 2025 (Week 11)

 

12

Topic 10: Managing Financial Crises

In this last topic, we will bring all to a close, by looking at managing banking crisis. More specifically, we will compare and contrast the two recent crises: the 2008 global financial crisis and the banking turmoil in March 2023.

 

13

Revision

 

 

Final exam (50%): During the University Examination Period

 

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Unit information based on version 2025.04 of the Handbook