Financial Institutions

Read the instruction sheet and choose to answer one of the five topics. Please let me know if you have any questions. This should be a very high-quality written paper.

Topics we covered in class [for your own reference]:
– The Fed
– Banks
– Mortgages and securitization
– Investment Banks
– The Financial Crisis
– Mutual Funds
– Hedge Funds and VC/PE

FINC 249 – Final Paper


Due date = Monday, October 18th [11:59 PM]


The final paper for this course provides you with an opportunity to explore topics we discussed in class in greater depth or other topics related to financial institutions that we did not cover. In this document, I will discuss the expectations for the paper, how it will be assessed, and provide sample topics.


Goal: The goal of the paper is to analyze an issue related to financial institutions. The paper should NOT simply be a summary/description of a particular topic. While such background information should be included in the paper, this alone will not get you a high grade. Rather, the paper should either critically evaluate an issue or make an argument of some kind. See the proposed topics at the end of the document for examples of what I mean by this.


General Format: There is not a formal length requirement or limit. As a general guideline, between 2,000–4,000 words is appropriate [approximately 5-10 pages with 12 point font and 1.5 spacing]. Background information should constitute less than half of the paper. The critical analysis should constitute the bulk of the paper.


Intended Audience: Write the paper as if it will be read by a fellow student taking this class. Do not extensively review topics we covered in class. You should provide sufficient background information to understand your primary thesis/argument.


If you choose your own topic but need to provide a long background section to make your argument accessible to a fellow student, this may be an indication that the topic is too far-removed from the core of the course. You may want to consider a different topic if this is the case. It’s ok to provide a relatively long background section if needed, but remember this is not the primary goal of the paper.


Rigor: An important component of how I assess your work will be the rigor of your analysis and arguments. Statements should be supported by evidence, which should be critically evaluated. Both in this class and out in the real world, it’s not only important to make a strong argument to support your point, but equally important to consider why you may be wrong. That is, what’s the counter-argument? In some cases, the evidence against a point you are making may be weak, but you should explain why it is weak.

Let’s consider an example of what I mean by this. In the write-ups, I’ve noticed students saying things such as “Economic theory predicts that the Fed’s QE program will lead to higher stock prices.” While this statement may [or may not] be correct, it lacks rigor. What theory in particular does this reference? What are reasons this theory might not hold? How do we reconcile this theory with the empirical evidence? Why do some people claim QE will not lead to higher stock prices? Is there a flaw in their logic?


An important aspect of supporting your arguments is citing high-quality evidence. While it’s fine to reference the popular press, opinion pieces, etc., these should not be your primary source of evidence.


Arguments  are  better  supported  by  academic  research,  think  tank/industry  reports,  reports  from government agencies, etc. Of course, the arguments from these sources should still be critically examined. It is helpful to consider a wide range of views on a particular topic. For example, the sample topics below include resources from both right-leaning and left-leaning think tanks as well as for- profit and non-profit [e.g., academic, government] institutions. Depending on the topic you choose, it may also be helpful to provide your own [simple] empirical analysis, but this is not a requirement.


Grading Rubric [100 possible points]:

  • Background information [35 points]: The paper should connect to ideas we have discussed in The paper should be accessible to a typical student who has completed this course. The background information should be sufficient to understand the main argument/thesis of the paper.
  • Critical analysis [50 points]: The paper should clearly lay out a question/thesis that it The analysis should be comprehensive, cite high-quality evidence, and convincingly address counter-arguments.
  • Exposition [15 points]: Is the writing clear and compelling? Is the paper well-organized? Are there spelling/grammar mistakes that distract from the main message? [Note: I won’t penalize you for minor spelling/grammar mistakes].


Miscellaneous Guidelines:

  • References: All references should be Err on the side of citing too much. You can use whatever style [e.g., MLA, etc] you like for references.
  • File Type: Please submit your final paper as a pdf or word


Choosing Your Topic:

You do not need my permission to work on any of the suggested topics below. If you want to work on a different topic, please email me your proposal by September 29, 2021. Similar to what I did with the suggested topics, please tell me what questions you want to address in the background and critical analysis components of the paper. Please also provide a couple of potential references that you’ll use for the project.


Suggested Topics:

I provide five suggested topics for the final paper below. For each topic, I provide questions/topics you may want to address in the background and critical analysis components of the paper. These are only suggestions. If you decide to pursue one of these topics, you do not need to address all of these questions, and there may be additional questions you want to focus on.


I also provide suggested references. These are intended to be a starting point for your research and provide examples of high-quality resources. The resources are not intended to provide sufficient information to address the background/critical analysis, so you should not exclusively rely on them. If you decide to work on the suggested topics, you are not obligated to use the references I have provided. Again, they are only suggestions.


1.       Stablecoins and central bank digital currencies [CBDCs]


  • What is a stablecoin? Why are policymakers concerned about these instruments?
  • What is a CBDC, and why are central banks developing them?


Critical evaluation:

  • Are CBDCs a “solution in search of a problem”? Why or why not?
  • What are potential unintended consequences of CBDCs? Do the potential benefits of CBDCs outweigh such consequences?


Potential References:

  • Gorton and Wang, “Taming Wildcat Stablecoins” Link
  • Waller, “CBDC: A Solution in Search of a Problem?” Link
  • Bank of International Settlements, “CBDCs: an opportunity for the monetary system” Link
  • Deutsche Bank, “Why would we use crypto Euros?” Link


2.       Artificial Intelligence and Lending


  • How is AI used in lending? It may be instructive to provide a case study of how a particular firm uses
  • How has AI changed consumer credit markets in recent years?


Critical Evaluation:

  • Why does the use of AI potentially lead to biased/discriminatory outcomes? Discuss relevant empirical evidence on this
  • What are potential policy responses to address this problem? Would such policies effectively fix the problems they are intended to address? Why or why not?


Potential References:

  • Brookings Institute, “Reducing bias in AI-based financial services” Link
  • Bartlett et , “Consumer-lending discrimination in the FinTech Era” Link
  • Congressional Hearing, “Equitable Algorithms: How Human-Centered AI Can Address Systemic Racism and Racial Justice in Housing and Financial Services” Link



3.       ESG Mutual Funds


  • Describe the ESG mutual fund How has it evolved over time?
  • What sorts of metrics do funds use to evaluate stocks? How do they balance financial and ESG performance?


Critical Evaluation:

  • Some claim that ESG funds are, essentially, a marketing Do you find such claims compelling? Do ESG funds actually make a difference in promoting socially responsible behavior by corporations? Would other approaches be more effective? It may be helpful to include a discussion of engagement vs. divestment.


Potential References:

  • Larry Fink [Blackrock] 2021 letter to CEOs Link
  • JP Morgan, “COVID-19 shows ESG matters more than ever” Link
  • Albuquerque et al. “Love in the Time of COVID-19: The Resiliency of Environmental and Social Stocks” Link
  • BNY Mellon, “The Inconvenient Truth About ESG” Link


4.       The Fed’s Covid response


  • What actions did the Fed take in response to Covid? What were the goals of different programs implemented by the Fed?
  • Compare the Fed’s actions to those taken during the Financial


Critical Evaluation:

  • What were the strengths/weaknesses of the Fed’s response? If you could go back in time and change an aspect of what the Fed did, what would it be? Why do you think the Fed didn’t do this?


Potential References:

  • Clarida et , “The COVID-19 Crisis and the Federal Reserve’s Policy Response” Link
  • Brookings Institute, “What’s the Fed doing in response to the COVID-19 crisis? What more could it do?” Link
  • Cato Institute,    “COVID-19:      Implications    for    Monetary   Policy    and    Fed Independence” Link
  • Cachanosky et , “The Federal Reserve’s response to the COVID-19 contraction: An initial appraisal” Link


5.       Special Purpose Acquisition Companies [SPACs]


  • What is a SPAC? Describe the structure of a SPAC An example might be helpful.
  • What are advantages/disadvantages of SPACs compared to traditional IPOs?


Critical Evaluation:

  • Why have SPACs become so common in the last two years?


  • Is the current regulatory framework for SPACs adequate? What are potential improvements that can be made [i.e., either in terms of new regulations or deregulation]? What are the benefits/drawbacks of such proposals?


Potential References:

  • Securities and Exchange Commission, “What You Need to Know About SPACs” Link
  • Gahng et , “SPACs” Link
  • Goldman Sachs, “The IPO SPAC-tacle” Link

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