MMN326036 Commercial Banking Underlying Financial Theories

Question:

This consists of 40% of overall examinable component.

The role of commercial banks, beyond generating profits for, and paying dividends to, the providers of its capital is under increasing scrutiny. How those profits and dividends are generated (who do they lend to, what markets they operate in, etc.), and the extent to which other stakeholders such as customers, work colleagues and the communities in which the business operates also benefit, or are at least not prejudiced, are regarded increasingly as important metrics of performance.  For commercial banking this broader scrutiny is particularly acute: the sector is at the centre of economic stability and a fundamental lesson learnt from the financial crisis is that firms will be judged not only in terms of the products and services they offer, but also by the way in which these are provided.  

Within commercial banking, the reality (and perception) of the behaviour of key institutions during the crisis brought upon it much regulatory attention is that has now been coded and enforced to ensure the safety and soundness of the financial system.  However, the public in general have expectations that no go beyond statutory obligations, company law and corporate governance requirements.  They want to see bank directors manage the industry beyond profits and compliance and support social, cultural, and environmental goals: Although markets may view this with a degree of scepticism (‘green-washing’ and ‘woke-banking’) , societal expectations should not be underestimated.  Commercial banks are now subject to competition from non-bank institutions, fragmented but providing substitute products and services, and new consumers are technologically savvy and without the same brand attachments to brands of previous generations.

In this course we have examined four main theories that apply to commercial banking: (Financial Intermediation Theory, Monetary Theory, Interet Rate Theory, and Asset Price Theory).  You will conduct a critical literature review on the current state of research on how any of these are currently being challenged by the need for ‘ethical’ banking.  You will evaluate the arguments and discuss the potential to impact to commercial banking.  

Task:

  • Use current and relevant academic journal articles to critically analyse the current state of research on the impact of ethical banking on the commercial banking sector.  Discuss its potential impact to intermediation, monetary policy, interest rates, or asset pricing from one of the theoretical perspectives discussed in the course.

An important element of an MSc is to demonstrate the ability to critically appraise the literature and theory from a variety of sources, developing own ideas in the process. You should conduct extensive literature search to gain a comprehensive and detailed knowledge of the key issues.

Literature review essays

Writing literature review essays deepens your learning of the subject you are studying and strengthens your ability to express and support your views on a topic.  The skill to write literature reviews is extremely important in the continuation of your academic studies, research and in all areas of business and professional life.

The Minimum Elements of a Literature Review Essay

The quality of a literature review essay is derived from three interrelated factors:

  1. Structure: the essay must demonstrate a critical understanding of the literature
  2. Quality of the argument: you should constantly refer to the fundamental aspects of the academic papers you are discussing.
  3. Quality of the writing: be focused, avoiding digression and tangential discussions

You should aim for a balanced assessment of issues: your literature review should consider as many valid sources as necessary

Understanding the Question

First, make sure you have read and understood the title: make sure to do this before you start writing.  Understand the examiners expectations: learning outcomes, sources, tools of analysis, word limit, or other requirements

Planning

Write an outline: don’t plan on screen by pushing text around, it is essential to get the structure right.

Planning and reading will take more time than actual writing.  In a finance literature review essay, writing is an iterative process (planning and reading can happen simultaneously).  Literature review essays often have four layers:

  • Underlying financial theories
  • Current research findings
  • Methodologies
  • Findings

Once you are ready to start writing…

  • Make the most of your software

Most word processing applications (MS Word) have referencing and formatting options.

In addition,

  • Each page should have at least a page number → use header/footer
  • Double spacing boosts readability and makes commenting easier (if you want feedback)

The Introduction

The most important sentence of your essay is the first one, but the introduction should be the last thing you write.

The first sentence of your introduction should grab your reader’s attention

  • It should bear some relation to the title of your essay, but not repeat it
  • It should not be a definition:
  • Don’t start with a quotation that has nothing to do with the topic
  • Don’t start by re-writing the question

Arguments:

Your essay must have a clear argument leading from the initial question to the conclusion.

Each paragraph develops the theme in an ordered manner.  You can structure them with a single “point” per paragraph.  This is a good rule if you are not a confident author:

  • 1st sentence is the article’s argument, topic, or main idea
  • 2nd sentence is current research supporting/against the argument
  • 3rd sentence is the findings of such research including methodologies used
  • 4th sentence is how you think the argument relates to the topic.

Clearly demonstrate how your points link up to each other: remember your reader cannot see into your mind

Presenting mathematical equations

Financial reasoning usually rests on theories and assumptions that can also be presented mathematically.  Make sure that you use available evidence, examples and counter-arguments when you are using equations to explain their relevance

An equation can replace a hundred words but if you use them these must “add” to your argument and you should explain its relevance and “how it works”

  • Quantitative methods, when appropriate, make your analysis explicit
  • Explain symbols which you use, even the most common ones
  • “Copy-pasted” formulae do not add any value unless related to the argument

You should number your equations and type them on their own line leaving an empty line above and below the equation.  These are usually typed in italic.  Be careful to identify biases in statistical reasoning as sometimes figures do not provide the absolute truth.  Use numbers with caution, state where the weight of evidence lies

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