Chapter 19 (there is not chapter 18) Flashcards
What is a liquid asset for the bank?
Cash, T-bills, T-notes
What is stored liquidity for a bank
Having T-bills, T-bonds, cash, etc
What is purchased liquidity for a bank
Where the bank goes out and campaigns to increase the deposits they receive from customers. This can be done by offering higher GIC rates, higher savings account rates, etc. Essentially this is costing them some money
What is the cheapest way of bank getting money?
Core deposits which is money that sits in chequing and savings accounts which is basically free money
What does it mean if the bank has too much cash on hand (idle cash)?
It is NOT being efficient
What are reserve requirement ratios
Minimum amount of liquid assets that needs to be kept on hand for the bank
Does Canada have reserve requirements?
No
Explain the tradeoff between funding risk and funding costs. Give an example
As the funding cost goes down, the risk goes up. And as the funding cost goes up, the risk goes down
Ex: The bank makes more money by taking deposits (low funding) and loaning them out compared to a GIC where they have to offer a return to the customer. The difference is that the deposits are more risky since they can be withdrawn at any time versus the GIC is locked in for a period of time
Who is the lender of last resort?
The federal bank which is the government bank
