Week 7
Microeconomics of Banking
Why do banks exist? Asymmetric information, liquidity transformation, and the Diamond–Dybvig model — the economics beneath every balance sheet.
Week 7 materials
Readings
What we cover
- Hackathon debrief — what your projects taught us
- The final project: what we expect
- Banks: what and why? The economic functions of intermediaries
- Asymmetric information: screening, monitoring, and why lending is hard
- Liquidity transformation — and why it makes banks fragile (Diamond–Dybvig)
Put it to work
This week’s lab, PC Lab 6, makes you the loan officer: predicting firms’ credit scores with machine learning.