Banking Flashcards
Depository institutions provide:
- Create liquidity
- Minimize cost of obtaining funds
- Minimize cost of monitoring borrowing
- Pool risk
Financial institutions
- Commercial banks
- Savings and loan associations
- Savings banks and credit unions
- Money market mutual funds
Thrift institutions
- Savings and loan associations
- Savings banks
- Credit unions
Deposit insurance
Most financial institutions insured by federal deposit insurance corporation (fidc)
Balance sheets
Banks use to list their assets, liabilities, and net worth
Assets
What banks own
Liabilities
What bank owes
Net worth
Difference between assets and liabilities
Liabilities + networth=
Assets
Required reserves=
Required reserve ration X total deposits
Excess reserves=
Total reserves- required reserves
Demand deposits
Claims depositors have against banks assets and checking accounts
Prime rate
Interest rate banks charge most creditworthy customers for short term loans of less than a year
Constraints of deposit creation
- Deposits- willingness of customers to continue accepting checks rather than money
- Willingness of consumers to borrow
- Willingness of banks to lend
- Federal regulations
Money creation process
- Banks have excess reserves
- Banks lend excess reserves
- Quantity of money increases
- New money is used to make payments
- Some of new money remains on deposit
- Some of new money is a currency drain
- Desired reserves increase b/c deposits increase
- Excess reserves decrease but remain positive