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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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Why do Banks care about settling their debts at the end of the day? [duplicate]

The way I understand the current banking system is: Banks make money primarily by writing loans and then collecting interest When I go to a bank A and take out a loan for 500$, they take my account ...
user2741831's user avatar
1 vote
0 answers
35 views

Diamond-Dybvig model - condition for bank run

I am following the textbook of Freixas and Rochet (p.249 and 253) and cannot understand where their condition for bank runs comes from: They say that bank runs occur iff $$C_1 > \pi_1C_1 +(1-\pi_1 )...
ABCBAA's user avatar
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The liquidity of bank's assets and bank's systemic risk

I would have the following question. May the liquidity of a bank's assets be non-linearly related to the bank's systemic risk? More specifically, more liquidity can increase systemic risk during ...
Maurizio Marinaro's user avatar
2 votes
2 answers
76 views

What is the rationale behind randomly denying clients for loans

Bank AAA is the only bank in the country and it has a very strange loan policy. It sets a relatively low interest rate for loans (but still high enough to make a profit) so that the demand for loans ...
ZZZ's user avatar
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1 answer
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How do reserve balances held by the banks at the fed show up on their balance sheet?

I assumed banks' reserve balances at the FED would increase with higher interest rates (less lending, more money held in reserves). However, looking at the balance sheets of major banks, the ratio of ...
A. Shultz's user avatar
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0 answers
29 views

Why do sweep accounts not inflate prices at the end of the business day?

From investopedia, sweep accounts are defined as a bank or brokerage account that automatically transfers amounts that exceed a certain level into a higher interest-earning investment option at the ...
user47609's user avatar
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0 answers
22 views

Is there an estimation about the monetary conseuqences of the distrust of the markets caused by the freeze of the Russian assets?

I think already the news of the frozen Russian assets (and the possibility of its nationalization to the Ukrainian government) caused some distrust on the market. If the probability of that the bank ...
Gray Sheep's user avatar
2 votes
0 answers
29 views

Fake long-term deposits

Story#1 Say banks have two saving options for you: one-year option or month-by-month flex option. Say the flex option give a annualized rate of 2 percent, and the one-year option gives 5 percent (...
High GPA's user avatar
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Repaying loan principal destroys deposits - but what about making interest payments?

It's pretty well understood (and documented) that when a bank loan principal is repaid, deposits are destroyed. What about the effect of interest payments? Intuitively, I would expect paying ...
Solaxun's user avatar
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2 answers
82 views

Good books on money creation and monetary theory?

I just finished reading "Where does money come from?" (Ryan-Collins) on how commercial banks create the bulk of the money supply, and I am still hungry for more material that will help me ...
dreamerboy's user avatar
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Calculating Effective Maturity with Negative Cash Flows

The formula for effective maturity. Suppose that an installment plan also shows additional borrowings of a debtor. That is, at some point in time (other than the inception date) the borrower is given ...
Larx's user avatar
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can the amount of cash reserve ratio reserve bank of india gives back to banks or not

one instrument we have learnt like Cash reserve ratio . supoose crr is 4% and one person deposit 100 rupee in bank. now the crr is 4 it means out of 100 rupees 4 will go to rbi .my question is . can ...
Dheeraj   singh 's user avatar
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0 answers
13 views

Funding the American Economy During the Gilded Age

Does anyone know how John Pierpont Morgan Sr. funded the American economy during the Gilded Age? I'd like to learn about his methods and the significant role he played in shaping the economy through ...
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-1 votes
2 answers
53 views

What will happen to the selling prices of homes if commercial banks are mainly financed via bonds?

Someday people who have no need for loans might never have a need for a bank. For example, I might pre-pay for smartphone wireless data or pre-pay for coffee. If I owe you 5 USD perhaps someday I ...
H2ONaCl's user avatar
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2 answers
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What does a Denovo bank balance sheet look like on Day 1?

New banks require capital of $32M before starting operations. On Day 1, what does it's balance sheet look like? Before the bank makes a loan, it needs reserves to settle the transaction. Are those ...
Solaxun's user avatar
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1 answer
55 views

How does the Fed supervise and regulate foreign branches of its member banks?

https://youtu.be/dka4fHQI4ZQ?t=46 According to the video, they say the Fed regulates and supervises foreign branches of its member banks, and I wanna know how the Fed does that. Does the Fed send ...
cdleace's user avatar
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2 answers
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Why would the fed impose larger cash requirements on banks if they’re already struggling to compete?

I was reading about the fed’s new regulatory efforts to further increase bank’s cash holding requirements. However, they’re doing this at the same time banks are facing more competition and draining ...
Grant Curell's user avatar
1 vote
1 answer
45 views

Why are subscriptions to the World Bank's IBRD measured in 1944 US dollars? How is this calculated?

Several official documents published by the World Bank's 'International Bank For Reconstruction and Development' (IBRD), such as https://pubdocs.worldbank.org/en/795101541106471736/...
M. Y. Zuo's user avatar
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2 answers
218 views

How can banks increase their central bank reserves?

Is it possible for a commercial bank to independently increase their central banks reserves? If yes, how would they do it? To be clear, when I say independently, I mean a bank would like to increase ...
troy beckett's user avatar
0 votes
1 answer
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Loss absorption via Common Stock

As a primer, I want to lay out my limited understanding of the topic: Common stock: is part of CET1 Capital of a bank used to absorp losses earlier than e.g. preferred stock and other types held by ...
Marcellvs's user avatar
1 vote
2 answers
238 views

How do bad loans make a bank insolvent?

If the bank was taking deposits and actually lending these deposits out for loans I can see how loan defaults could send them bankrupt. However banks don't use deposits to create loans, loans are ...
troy beckett's user avatar
-1 votes
1 answer
164 views

What process does a new bank go through to get its first central bank reserves?

Im trying to better understand how banks work and one of the first thing that confuses me is central bank reserves. Current understanding of central bank reserves: Central bank reserves never enter ...
troy beckett's user avatar
3 votes
1 answer
393 views

Why have bank deposits gone down with rising interest rates?

From an opinion piece in the Washington Post: "Since the Federal Reserve began to raise rates about a year ago, deposits leaving the banking sector have totaled nearly $1 trillion". Why ...
T Scherer's user avatar
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1 answer
141 views

What happens to the money supply when a bank is allowed to go bust

I'd like to ask this question in two different ways just to help clarify the issues. Scenario 1. There is no deposit insurance and the central bank take no special action in response to the bank ...
Mick's user avatar
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1 vote
1 answer
82 views

How does commercial banks handle transfer of deposit?

In fractional reserve banking, the bank is obliged to have a minimum ratio of liquidity it have (to pay for customers' deposits) and the total money its customers have in their bank accounts. But what ...
Amir reza Riahi's user avatar
2 votes
1 answer
76 views

Are bailouts destabilizing the global economy?

I saw this posited in this WSJ opinion piece here Notes on the Fed In 1998, engineering a \$3.6 billion rescue of the giant hedge fund Long-Term Capital Management. In 2001, slashing interest rates ...
Grant Curell's user avatar
0 votes
0 answers
80 views

Federal Funds Rate & Reserves Market Contradiction

Edit: I do understand this isn't how things work anymore, since we are in a "Ample-Reserves Framework" and the quantity of reserves no longer makes a difference that much and it is primarily ...
ayazasker's user avatar
2 votes
2 answers
84 views

Reserve ratio from H.8 report

Reserve ratio definition Macroeconomic textbooks define reserve ratio as reserves / deposits. So for example, the following bank: has a reserve ratio of ...
dharmatech's user avatar
1 vote
1 answer
202 views

Do banks pay interest on the money they create?

A bank takes in \$10 in deposits and makes \$100 in loans, creating \$90 of new money. They pay the depositor interest on the \$10 and earn interest on the $100 loan. It looks to me like they don't ...
SRed's user avatar
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2 votes
1 answer
59 views

How would a Central Bank Digital Currency be different from a private bank deposit?

Both are digital, both can be transferred digital, and both are denominated in the same currency. A CBDC is "a direct liability of the central bank, rather than of private banks or coin issuers&...
ras's user avatar
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5 votes
1 answer
101 views

Bank runs, deposit guarantees, and moral hazard

I understand the concept of moral hazard. If a government guaranteed all bank deposits 100%, bank customers would simply go to the bank with the highest interest rates and rely on the guarantee that ...
nigel222's user avatar
  • 261
1 vote
3 answers
251 views

Money Creation Confusion

I've been studying money creation recently and have come across some contradictory statements and different types of theories that I'd like to clear up. The classical theory of money creation which ...
ayazasker's user avatar
0 votes
2 answers
74 views

Taking a loan to pay another loan with the same interest

I had a discussion with family members about how taking a loan to pay another loan with the same interest is basically wasting money and they didn't agree. To make things clearer, say loan 1 is 100 ...
DrShellyCooper's user avatar
1 vote
0 answers
46 views

In the Diamond-Dybvig model, why does the long-term investment not offer a liquidity risk premium?

In the basic version of this model (see link below), both the short-term asset (deposit) and the long-term investment (“technology”) are considered to be risk-free (that is, there is only one possible ...
Leonid Konoplev's user avatar
0 votes
1 answer
48 views

Commercial bank holdings of shares and bonds since 2005

I would like to know how the amount of shares and bonds held by private banks has changed over the past 15 years or so. I dare say the data is available on FRED (or similar) but I don't know exactly ...
Mick's user avatar
  • 1,046
-1 votes
2 answers
95 views

What have banks mostly done with their "excess reserves" obtained during QE

I put excess reserves in quotes because I know that in many countries there are no reserve requirements, so what I really mean by "excess reserves" is reserves in excess of what banks like ...
Mick's user avatar
  • 1,046
1 vote
0 answers
36 views

What is a Bank-Run Equilibrium (Diamond-Dybvig Model)?

I have an assignment on Bank-Run Equilibrium, studying the Diamond-Dybvig Model. The question goes as: Suppose the mass of depositors is equal to 10, θ = 1/2, and r = 1. Suppose that y1 = 1.2 which ...
Irfan Adhityo's user avatar
2 votes
1 answer
100 views

Who insures the FDIC in case it fails?

I understand that the Federal Deposit Insurance Corporation (FDIC) failing is unlikely, but the probability of such a failure is still positive. In case the FDIC fails, who covers the customers' ...
dodo's user avatar
  • 307
-1 votes
1 answer
93 views

Why are full reserve banks called such, when they still have depositors?

Why do full reserve banks put all their depositors' money in reserve while depositors still have the right to deposit? Why is it called full reserve banking when people can deposit their money there?
okman's user avatar
  • 21
2 votes
1 answer
22 views

Reserve ratio and risk

If the reserve ratio is 0 (e.g. in Hong Kong), why isn't lending riskless for banks? They effectively generate assets without creating a liability (even if the reserve ratio is > 0, they can lend ...
justasking's user avatar
15 votes
8 answers
9k views

Why are banks providing mortgages?

Currently I'm learning about finance and I want to understand the following. In the Netherlands the interest on a mortgage is about 3%-4% depending on the payback period. When learning about stocks ...
Tim's user avatar
  • 295
2 votes
2 answers
115 views

How central banks can lend money and always expect more money

for making this question clear let's create a simplified world when there are only 3 private banks (bank A, bank B, bank C) in the world, and 1 central bank. let's also assume that all the citizen in ...
Andrew Nic's user avatar
1 vote
1 answer
150 views

What incentives do private banks have not to lend money

It is generally accepted that banks can create money by lending. If sb. wants to take a loan the bank simply extend the balance sheet by creating that loan. The bank has to adhere to reserve and ...
CuriousIndeed's user avatar
1 vote
2 answers
57 views

Mechanisms to discover unbacked creation of foreign currency

Suppose there's a country called Crook Islands. The president is John Crook, one of his sons owns a bank called Crook Island Bank domicilated on Crook Islands, and the other son is the Minister of ...
Jeschu's user avatar
  • 113
0 votes
2 answers
121 views

How do banks trust each other especially in cross-border situations?

Maybe my question is far too trivial for this community. But let's see. I don't have an economic background. I wonder how banks trust each other when money gets transferred from one bank to another ...
SteAp's user avatar
  • 101
0 votes
0 answers
34 views

loan to deposit ratio

I'm straggling to understand why loan to deposit ratio could be greater than 1. According credit creation theory every creation of new loan is matched by creation of deposit, so assuming some ...
Ronald's user avatar
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1 vote
0 answers
5 views

should I weigh an average net margin calculation of Eurozone banks per number of banks or per asset size to validate parallel trends?

I'm trying to perform a DiD regression analysis in order to evaluate whether bank profitability has decreased with the implementation of a negative interest rate policy (NIRP). The regression is ...
rememberhthename94's user avatar
1 vote
1 answer
217 views

Why can't banks print infinite money by running up huge debts at the secondary discount window rate?

Banks in financial trouble can borrow from the Fed at 1% interest. Would anything stop a bank from borrowing $1M every year plus the interest on all prior debt? Since their ability to make interest ...
Retracted's user avatar
  • 113
1 vote
0 answers
29 views

optimal lending levels

Many ratios are mentioned to allude to what caps the amount of money a bank could lend. But none is really convincing. Usually debt ratio and solvability (Basel) ratio are mentioned. Elsewhere there ...
Averroes's user avatar
  • 113
0 votes
1 answer
152 views

BA in econometrics with mathematics vs BA in econometrics with computer science [closed]

Uni applications start quite soon and I have a hard time deciding which degree should I choose. I’m more interested in mathematics than in CS. However, it isn’t my greatest strength. I was thinking ...
1.013.666.013.1's user avatar

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