Module 26 Flashcards
central bank
an institution that oversees and regulates the banking system and controls the monetary base
trusts
companies that managed only inheritances and estates of wealthy people
panic of 1907
dominoe failure of many trusts in 1907, leading to the creation of the fed
board of gevernors
7 members of the fed appointed by the president and approved by the senate
regional federal reserve banks
12 banks run by a board of directors chosen by local banks in each federal reserve district
federal open market comittee
board of governors + chairman + 5 regional bank presidents (including NY)
reconstruction finance corp
makes loans to banks and purchases bank shares
glass-steagall act of 1932/33
ability of banks to borrow from fed
separates banks into commercial and investment
commercial bank
accepts deposits and covered by deposit insurance
investment bank
trades in risky financial assets, not covered by deposit insurance
savings and loans/thrifts
another type of deposit-taking bank, usually specialized in insuring home loans
long term capital management (LTCM)
hedge fund, unregulated private investment partnership only for wealthy
leverage
when an institution finances its investments with borrowed funds
balance sheet effect
reduction of a firm’s net worth due to falling asset prices
vicious cycle of deleveraging
when assets sales to cover losses produce negative balance sheet effects on other firms, forcing sales of more assets and therefore further decline in asset prices
