Week 2 - ADIs Flashcards
Are bank deposits assets, liabilities or equities for ADIs?
Liabilities
What accounts do ADIs hold and with whom do they hold it?
All ADIs have an account with the central bank called an ESA (Exchange Settlement Account) which is an ASSET for them.
Are ESFs assets, liabilities or equities for the Central Bank?
Liabilities, just like bank deposits for ADIs
What one thing can banks use ESFs for?
To make and receive payments to/from another BANK or the RBA. Cannot be used with non-bank entities.
What 3 types of money exist in the economy?
1) Cash
2) Private Bank Deposits
3) Central Bank Deposits
Is cash an asset, liability or equity for ADIs?
An asset
What happens to bank deposits for a transaction between two non-bank entities.
Bank A destroys the deposits and sends ESFs to Bank B. Upon receipt of the ESFs Bank B creates deposits. On net, bank deposits across the economy are unchanged.
What happens to bank deposits for a transaction between a non-bank entity and an ADI when the non-bank entity is not a depositor with the ADI?
The non-bank entity instructs their bank to send money to the ADI. Their bank destroys their deposits and sends ESFs to the ADI. On net, THERE IS A CHANGE IN BANK DEPOSITS ACROSS THE ECONOMY.
What happens to bank deposits for a transaction between a non-ADI depositor and an ADI?
The ADI’s Liability (Deposits) increases/decreases and their equity (accum. profit) changes in turn to match. No central bank money is involved.
What happens when an ADI loans money to a depositor? Is central bank money involved?
Central Bank money is not involved. ADI increases liabilities and gains asset (loan). i.e. the funds are created.
What has been the observed net effect of ADIs on the money supply.
ADIs are net creators of money. When providing funds to a customer (i.e. loans) they are able to create deposits without first destroying deposits or receiving central bank money.
