Banking Theory and Practice

The assignment is a report requested by the manager of banking policy team at a central bank. As the central bank’s junior analyst, you have been asked to prepare a report on the financial intermediation and financial stability in the domestic banking sector, which will be submitted to the senior management. The aim of the report is to continue monitoring the effectiveness of the current macroprudential policies in the finance and banking sector and any issues observed. You should also, where appropriate, use references to support your analysis.


1. A cover page is required, containing a title and the total word count. (5 marks)
2. Changes in banking policies may have large impacts on the competition in the banking system. Discuss the main theories put forward to explain whether competition is good or bad for the banking stability. (15 marks)
3. Provide a critical discussion on externality in the context of banking stability and failures. Comment on its effectiveness and rationale of capital adequacy requirement.
(25 marks)
4. The central bank is in the procedure of proposing new tools for the stability and stress tests for those regulated banks, especially the domestically important banks. Critically discuss the concept of ‘too big to fail’ in banking, comment on the implications and briefly discuss the solutions. (25 marks)
5. Provide a critical discussion of relevant academic articles on the issues of adverse selection and moral hazard in banking and solutions to those issues. Cover at least 3 academic articles on the topic. (25 marks)
6. List of references is required. You should provide the details of any the material that was cited in the report. Citation in text and reference list should follow Westminster Harvard Referencing Style (details can be found at: ).
(5 marks)

Format of Final Report:

1. An electronic copy of your assignment should be submitted via the module blackboard site (anonymous marking, do not put your name).
2. You must include module title on the first page (Cover Page) of your report. The report is 2500 words (±10%) excluding the title page, table of contents, appendices and references, with size 12 font and 1.5 line spacing for the main text.
3. List of References should follow the Westminster Harvard Referencing Style.

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