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Questions tagged [banking]

Use for questions about banks, their operations, and their role in the broader economic and financial system.

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Real Income and a Fixed Money Supply

What would happen to nominal income and wages if the money supply were fixed (100% reserve banking). Would real wages increase, even though nominal wages would stay the same or even decrease?
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Gilt edged securities with lottery prizes worth billions of dollars and other international currencies [closed]

CAN more and more gilt edged securities coupled with many Australian lottery prizes worth many billions of dollars and other foreign currencies equal tradings of international traders?I have no ...
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What are the costs of requiring banks to have more equity?

In The Bankers' New Clothes: What's Wrong with Banking and What to Do about It (2013), Admati & Hellwig recommend much higher equity requirements: Requiring that banks’ equity be at least on ...
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Why are banks allowed to resell mortgages?

It just seems like a way to get around money creation limits imposed by liquidity requirements. For example if a bank creates new money by extending new morgages then securitizes them and resells them,...
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How successful is the Islamic banking model?

Under Islamic law (Sharia), any interest is considered usury and is prohibited. This makes banking in Islamic ruled countries difficult as the normal way for banks to create profit is through lending ...
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“The odds of a bailout in the next century are still nearly 70%.”

In a 2017 Wall Street Journal op-ed, President of the Minneapolis Fed, Neel Kashkari, wrote: The odds of a bailout in the next century are still nearly 70%. I found it surprising that anyone could ...
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Since the financial crisis, what measures have been taken to solve the too-big-to-fail problem?

Ben Bernanke (2010): If the crisis has a single lesson, it is that the too-big-to-fail problem must be solved. So, what measures have been taken to solve the too-big-to-fail problem? To what ...
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In the context of banking, how (if at all) do the terms 'capital', 'net worth', and 'equity' differ?

In banking, are the three terms capital, net worth, and equity simply identical and exact synonyms? If not, how do they differ? (Aside: And what about in other contexts? For example, does the same ...
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Are these views on money creation set out by McLeay, Radia, & Thomas (BoE, 2014) mainstream/widely-accepted or heterodox?

In the Bank of England's Quarterly Bulletin, 2014 Q1, McLeay, Radia, & Thomas write a pair of articles titled: "Money in the modern economy: an introduction" and "Money creation in the modern ...
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2answers
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How does a bank create new money when it pays its own staff?

I am reading Ryan-Collins et al. (2013, Where Does Money Come From? A Guide to the UK Monetary and Banking System). I think I understand how banks create new money whenever they make a loan. Using ...
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How does the central bank fund open market operations?

This may seem like an extremely simple question, but I have been unable to find any satisfactory information on this. How, practically, does the central bank generate the funds to purchases ...
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How to do elasticity modeling for products where there is slab pricing like electricity?

I have few product categories eg prod1 prod2. Each category have similar products. So prod1 has 3 similar products with slight difference in features and prod2 has 5 products with slight differences. ...
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What country has the highest requirements for loans?

I was looking to find countries with the toughest regulations on loans(general loans not any specific ones) By that I mean: I mainly care to know where it is toughest for people to get a loan from a ...
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1answer
34 views

Greek Debt Crisis

If the Greek government defaults on its bonds issued by French and German investment banks, how does that prevent the French and German governments from paying back the money that they owe to ...
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1answer
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Differentiating through this integral in banking loans?

Working through the math which gives the following profit function for a bank but I can't seem to solve this first order condition. The profit function is defined as follows, \begin{equation} \pi_t = ...
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Bank Runs During the 1930s

Why were there numerous banks run right after the stock market crash of 1929? Why would a bank fail because the stock market crashes?
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Breaking Up The Big Banks

How can banks break themselves up? If they refuse to how can the federal government force them to break up or break them up themselves?
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Can one single payment contain multiple Merchant Category Codes (MCC)? [closed]

Some payment cards can be limited for certain purposes only (e.g. for paying only for food, or only for car fuel). When you try to pay for a different purpose, the system rejects the payment. I ...
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financial crisis '08: what is it meant by the banks were saved by the states?

Were banks literally saved with tax payers' money? Or is it that states borrowed the banks, consequently, the banks must return this money back at some point? Can someone please give me some ...
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Do banks pay each other from their reserves?

Suppose Alice wants to buy Bob's house but they use different banks. Alice gets a loan from bank A and needs to transfer her new deposits to Bob at bank B to pay for the house. Obviously Alice's ...
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122 views

Would capitalism without banks work?

According to Merriam-Webster's dictionary, capitalism is "an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, ...
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2answers
39 views

Can banks buy stocks?

Can a bank use its excess reserves to purchase stocks? If so, does this inflate the cost of borrowing for your average Joe since he has to offer returns (interest payments) that are competitive with ...
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Why don't we mint more m0 instead of creating m1 through fractional reserve banking?

From what I understand, m1 money is just as liquid as m0 since an individual can withdraw it from the bank at any time and in any quantity (up to the amount (s)he deposited). Because of this I don't ...
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Why doesn't the central bank extend loans directly?

I've been thinking about the credit theory of money lately and how it creates money. Since Banks look for sufficient reserves after extending a loan, and since the central bank always loans out money ...
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Money supply and Capital Flows

I have a super basic question on international macro. I read that an increase in the capital inflows (say because of favorable macro enviroment) can increase the domestic money supply. However, it is ...
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1answer
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How printed money gets to the commercial banks?

can you please clarify this for me? Gov't need money for deficit elimination, so they issuing bonds (lets say 1T, 10 years, 2%). Fed is buying the bonds with fresh money, so the gov't now has new 1T$ ...
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What is the easiest and cheapest way to store big money with option to any moment get then in cash? [closed]

Imagine I have a lot of money and my number 1 aim is to store them somewhere where I can get them fast if I need them. I don’t want to have dividends from my money but if I will it would be great. ...
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Hyman Minsky's view on Bank Examination

In Stabilizing an Unstable Economy (1986), Hyman Minsky argues that "bank examination is largely perfunctory... rather than an inquiry into the economic viability and the exposures to risk of banking ...
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1answer
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Can the amount of loans and deposits in entire banking system differ significantly?

Can the amount of loans and deposits in entire banking system differ significantly? When regarding the entire banking system, what factors impact the loans to deposits ratio? Is it roughly constant ...
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1answer
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Why are required reserves so trivially low?

We know that required reserves are the reserves that central bank requires banks to hold in reserves. Reserves= Required Reserves +Excess reserves. But I see that in 2017 Total Reserves (RESBALNS) = ...
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2answers
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Why do banks offer less interest on larger deposits?

This may be a UK only thing but... I have noticed that it is very common to see current accounts that offer some interest on the first couple of thousand pounds deposited with them and then less ...
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1answer
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What is the concrete meaning of Britain saying they export Banking Services?

Today I read: One of Britain’s chief exports is Banking Services. Now I presume that doesn’t mean consumer savings accounts. I presume it means investment loans to companies and equities holdings ...
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What qualifications does a bank need to create USD funds?

It is my understanding that, while any entity can create dollar-denominated assets (stocks and bonds) and sell them on the open market, only banking institutions in the United States can engage in ...
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Bank Capital and Profit

I am struggling a bit with understanding the meaning of capital ratios, and bank profitablity. It seems to me that capital requirements stipulate that a certain fraction of banks' risk weighted assets ...
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What were the liquidity requirements prior to Basel III?

I am investigating the impact of enforcing the Basel III liquidity requirements with a focus on the LCR. I have found some information about regulations in fore prior to Basel III in Sweden and ...
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1answer
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Where does bank’s Tier1 capital lie [closed]

Banks need to maintain certain minimum capital as per Basel norms but where does this money lie. If it lies in a bank account, what would happen if that bank goes bankrupt? Say, SBI keeps its Tier1 ...
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1answer
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Bank maturity mismach

So my question is about maturity mismatch and what is the appropriate method to calculate it. I have seen some simplified examples in academic books but, when I tried to approach it in a holdings bank,...
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1answer
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Open market purchase of securities and it's effect on balancesheet

An open market purchase of securities lead to increase in bank reserves ( Liability side) and increase in assets(asset side) of central bank balance sheet. My doubt is why it leads to increase in ...
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1answer
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Effect of the Bank Home Loans of Property Prices

my name is Nick and I'm from Sydney, Australia. In the last 5 years, our big cities such as Sydney and Melbourne has experienced rapid property price growth, they went so high and so fast that Sydney ...
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3answers
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Could a bank simply eliminate a loan from its books?

Assume a bank gives a loan to Mr X. for, say 100. The bank's assets (account "loans") increases by 100, and its liability (account "deposits") also go up by 100 (which is the extra 100 added to the ...
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1answer
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Do institutions buy debt with credit?

I am reading Money Power book, from 1932 (http://www.worldcat.org/title/money-power-and-human-life/oclc/3783026). The author explains how the War Loans in the UK worked. He says that the government ...
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What would be the possible effect on a country's economy if private banks are declared as non-profit?

Suppose, there are 100 banks in a country. 50 of them are government owned. What would be the possible effect on a country's economy if private banks are declared as non-profit? I.e. they can not ...
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201 views

Difference between Unit Banking and Direct Banking

As the title says, I want to understand the differences between Unit Banking Systems and Direct Banking Systems. Here are the few questions that'll help me understand: Direct banks provide remote ...
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1answer
117 views

Do banks make profits by selling bonds to the central bank?

I am a bit puzzled by the quote below, from here (emphasis mine): Modern monetary theorists have helped clarify the obvious point that private banks are not essential to the design of the system. ...
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How does lending money contribute to society?

I essentially asked this question here, but IMO didn't get an answer from anyone who knew what they were talking about. Normally someone gets paid because they work in a job, i.e. they contribute to ...
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1answer
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World Bank lending categories

I need to do data visualization of World Bank lending category for some countries using source from their page. When I was going through it I found some inconsistencies in categories they use to ...
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1answer
207 views

Would this alternative to fractional reserve banking work?

While reading the answer to Implications of abolishing Fractional Reserve Banking on mortgages and interest rates, I started to wonder if there wasn't a simple solution to the problems that would ...
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1answer
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What aspects of macroeconomics should I address for convincing an investor to invest in a certain country? [closed]

I have a task at my internship which is to write 2 pages about the economic conditions in my country. My question is what I could include in my research. Surely, I'll address inflation, currency ...
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2answers
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Why a bank never combine all benefits/promotions and issue a single Credit Card

Bank today issues multiple type of Credit Cards with different promotions linked to them. Any reason stopping a bank from issuing a single card with combined benefits/promotions, wouldn't that be more ...
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264 views

Isn't the liquidity trap about real interest rates?

Here is a so-called thought experiment. Suppose the inflation rate is negative, the nominal interest rate slightly negative, and the real interest rate positive (call it $r$). I think people would ...