Lecture 2a - Deposits Flashcards
A Deposit
Money placed in the care of an institution or other party, without transfer of ownership, which is returnable in full to the depositor.
Or
Material placed in the physical custody of a repository without transfer of ownership.
Irregular Deposits
When someone has a sum of money that they do not think safe in their own hands; they can give it to someone else who must return them, not the same money, but a like sum when they shall demand it.
A deposit made by a person dealing with a bank use to be of this nature.
Improper Deposit
Depositors in such cases become merely creditors of the depositary for the money or other things.
This species of deposit is also called an improper deposit to distinguish it from one that is regular and proper.
Non-Refundable Deposits
This bank deposits become non-refundable in total, because of the relationship change - the depositor has become a creditor.
Oddity of Islamic banking
Current statements and guarantees on deposits
DTI’s
Financial institutions are traditionally classed as those that take so-called deposits from customers
- Deposit Taking Institutions
E.g. Banks (Commercial: Retail & Wholesale), Building Societies, Central Banks
NDTI’s
And those that do not take such deposits from their customers
- Non Deposit Taking Intitutions
E.g. Insurance companies, pension companies & funds, unit, investment and property trusts.
Firms and Households
Technical distinction relates to the availability of funds:
Households are seen to have a excess of funds
Firms and seen to have a deficit of funds
Ultimate lenders
Agents whose excess of income over expenditure creates a financial surplus which they are willing to lend
Ultimate borrowers
Agents whose excess of expenditure over income creates a financial deficit which they wish to meet by borrowing
Intermediation
Intermediation would then be needed between firms and households to ensure that the flow of funds is made available to industry.
Firms need access to funds
Households need to be encouraged to stop hoarding and start saving.
Non-intermediation
Current thinking is that banks no longer act as intermediaries
They simply create money ex nihilo (out of nothing)
Households are no longer net depositors.
All agents are net borrowers
All money = loans
Maturity transformation
Households tend to be willing to make a number of deposits each for relatively short period of time
Firms tend to need single sums, but for long periods of time
Aggregation
Converts short-term household funds into long-term funds for firms
Intermediation could thereby permit the transformation of the short-term into long-term investment funds for firms.
Risk Diversification
Intermediaries acting for firms, deal with the necessary households
Each agent can deal with various firms on behalf of each household.
Economies of scale
Firms would only deal with the necessary number of households
Mediators are not be so limited and deal with a large number of households and firms.
There needs be less mediators than firms.
Gives room for economies of scale & risk reduction.
