Questions tagged [banking]

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

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17 views

How do banks (in Switzerland and elsewhere) protect bank secrecy while adhering to government oversight? [migrated]

Are banks in countries with strong secrecy laws (like Switzerland) letting the government see their account balances for oversight and tax compliance purposes? If so, wouldn't that defeat the purpose ...
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1answer
23 views

Why is the ECB asking EU banks to hold off on buybacks?

In the wake of the Covid-19 pandemic, the ECB requested EU banks not to pay dividends as well as refraining from buying back their own shares until the end of 2020. And that even if they had already ...
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1answer
33 views

Why do all/majority of loan contracts charge nominal interest rate instead of fixed real interest rate?

As far as I understand, all/majority of loan contracts charge nominal interest rate, there are (almost?) no loan contracts that charge fixed real interest rate. Why is it so? Normally I would expect ...
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12 views

How does interchange fee work?

Both Mastercard and Visa are charging merchants a fee, that is called interchange fee. The customer's bank, the payment receiving bank and Visa/Mastercard gets a cut of this fee. How does this process ...
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21 views

How do personal finance banking apps make money?

There are a bunch of apps and start ups, like Qapital and Varo that helps you save money. Some of them has monthly fees, but not all of them. How else could a company like that make any profit, if ...
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16 views

How would consolidation in the brokerage space make things better for banks?

There is a bit from an article I don't quite understand: China has been eager to whip its brokers into shape. Officials want capital markets to lessen the burden on banks, which last year provided ...
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13 views

Relative importance of the federal funds market in the post-2009 US economy

In the pre-financial crisis US economy, depository institutions had almost no excess reserves. Hence, it would make sense for some banks to have shortages of reserves and some with excess of reserves. ...
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1answer
18 views

What is the difference between a bank's Treasury department and ALCO?

I know that the treasury manages and controls the bank's capital. While the Asset-Liability Committee deals with the assets and liabilities in order to stay solvent, right? What are the similarities ...
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1answer
21 views

There is a paragraph about the history of credit rating agencies that I don't understand

"For a few decades, ratings were nothing more than private assessments, no different from any other form of consultancy provided to investors. Born out of a need in the burgeoning industrial world of ...
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76 views

Perfect Bayesian Equilibrium for banks

I'm reading this paper on credit lending cycles and trying to understand how it works for the case of one bank. This is the set-up of the model: There are two players, a bank and the market. There ...
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1answer
24 views

What's the difference of economic capital and liquidity buffer?

Economic capital is what for example a bank has and uses in order to stay solvent. Isn't this in a way a liquidity buffer? or what would be the difference between them?
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1answer
25 views

What are the differences between hedging with swaps, options or futures?

For instance if a bank wants to hedge against interest rate risk, it could use interest rate swaps, or options or futures contract. Or in any other example, when a manager is hedging against risks. ...
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1answer
35 views

What's the role of money multiplier in the banking system?

On the internet , there are lots of people claming that the banking system has an immense power because it can multiply money obtained by deposits ( 'make money out of thin air' ) and then lend this ...
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15 views

Bank lending rate & ROE

When a bank lends money to a company, does the bank (typically) demand an interest rate higher or lower than the ROE (Return on Equity)? I have always thought they demand a higher interest rate but I ...
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1k views

Mortgage loans from foreign banks at lower interest rates

I had a thought - what if I live in a relatively poor country like let's say Russia and I would like to buy a house. In order to do that, I need to take a mortgage loan. In Russia however, interest ...
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1answer
19 views

Who holds the Reverse Repo and Repo respectively in a Repurchase Agreement?

According to investopedia.com in this definition A reverse repurchase agreement, or "reverse repo", is the purchase of securities with the agreement to sell ...
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1answer
26 views

Are FedWire transfers and volume tracking exchanges of reserves between banks that have accounts at the Federal Reserve?

Looking at Fedwire® Funds Service - Monthly Statistics it appears that these transactions are between banks but I'm trying to confirm is whether the stuff they are exchanging is classified as reserves....
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1answer
31 views

Why is it that when a bank provides loans to people, it is considered a 'liability' on the bank's balance sheet? (Khan Academy Video-Related)

I am watching the Khan Academy Banking Video Series: (https://youtu.be/On3c86V5A_E) . (https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/money-and-banking/banking-and-...
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1answer
37 views

Is there unnecessary duplication for borrowing in this circular flow of income diagram?

Here is a circular flow of income that I took from Krugman's macroenomics textbook. We can see that when firms want to borrow they can go to the financial sector and borrow savings of national and ...
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2answers
37 views

Transparent Fractional-reserve banking as an alternative to the current system

I come from a layman perspective, but I've been trying to understand macroeconomics and finance. Currently I'm struggling with the current topic. Here I'm not worried about the system transition just ...
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1answer
21 views

How do the Government, Firms and the Foreign sector pay their debts in this circular flow of income?

Here is a circular flow of income that I took from Krugman's macroenomics textbook. Please notice, in this diagram households just give their savings to banks (which are part of the financial sector) ...
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30 views

Must US Treasury backstop US Federal Reserve?

The Constitutional Case for the Fed's Treasury Backstops | Cato @ Liberty writes no, I think? But I don't quite understand the financial terms iike "lever-up", backstop", "helicopter money". I looked ...
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1answer
33 views

What happens on a banks balance sheet when the borrower submits loan payments?

When the banks lends me money my demand deposits end up in his liabilities and my loan is on his assets. Lets say I paid that money to somebody who has an account at another bank. Lets ignore how the ...
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3answers
34 views

Why can't someone have their money restored if someone they paid in advance goes bankrupt?

A friend paid a travel company €3000 for a holiday in Australia. However the travel company went bankrupt so now her €3000 is lost. She has been informed by the liquidator that the company had such ...
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1answer
18 views

Can a commercial bank lend money from transaction/checking account as it would from a deposit account?

Transaction/checking accounts are highly liquid - M1 Deposit accounts are less liquid - M2 Per fractional reserve system, banks lend deposited money as credit to clients provided they keep a reserve ...
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1answer
25 views

Would saving money outside of banking system be able to reduce monetary base?

First of all, here is definition of monetary base taken from Investopedia A monetary base is the total amount of a currency that is either in general circulation in the hands of the public or in ...
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2answers
28 views

Time series in monetary policy

I wanted to learn how time series analysis is used to study monetary policy/ money and banking data, such as how and which techniques are used to study which data, what kind of problems are studied ...
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1answer
50 views

How do transactions in different currencies work?

Very basic question but I have not much knowledge in this field so sorry: Say I have a bank account and over the past year there were transactions in different currencies. I am guessing that a ...
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1answer
36 views

How does a mortgage-backed security issued by a bank allows it to borrow cheaper and make more loans?

I am currently reading a book called "Austerity, the history of a dangerous idea" by Mike Blythe. I am not an economist, but I am interested to learn more. Blythe writes (p.24): "The old 3-6-3 ...
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1answer
39 views

What's wrong if, to raise money, banks are selling Treasuries below their market price?

The Fed just pumped $1.5 trillion into the financial system. Where did the money come from? Where does it go? : AskEconomics so basically the banks sell their assets to the FED at a price that ...
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1answer
20 views

Bank of Canada operating band

I read the following quote about the Bank of Canada's "operating band" for inducing target overnight loan rates: ...
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3answers
85 views

Does Shadow Banking (i.e. non-Commercial Banking) produce transaction-useful money?

In shadow banking amongst primary dealers & large institutions...I understand repurchase agreements function similar to deposit accounts (Gorton, et al). Additionally, I understand how traditional ...
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2answers
122 views

What will happen to a poor country’s economy if it replaces its entire banking system with the Islamic banking system?

I don't know much about economics. So, I am just curious about the Islamic banking system. What I understand is: I know that the USA is the dominant economy and the USD is the dominant currency in ...
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2answers
128 views

Banks are allowed to print money out of thin air. Black magic or what? [duplicate]

Today it is wide spread notion that the commercial banks cat create a money out of thin air. Simply by typing numbers on computer. Every time a bank gives a load to a borrower, the loan money do not ...
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1answer
56 views

The financial crisis in 2008 explained in my own words [closed]

I'd like to double check if I understand the cause of the financial crisis in 2008. Correct me where I'm wrong please. So when people buy a house they can take a mortgage. This is basically a loan ...
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1answer
50 views

Shouldn't the total global debt amount to zero and not $253 trillion?

In Jan 2020, the Institute of International Finance (IIF) came out with a report (read summary here) that the total global debt is expected to climb to a new all-time high of more than $257 trillion ...
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1answer
36 views

What is the difference between the discount window and Fed repos?

I'm wondering how the Fed's discount window differs from it's involvement in the repo market. To the best of my knowledge, both are tools used to conduct monetary policy and both are also short-term, ...
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1answer
29 views

Why do banks keep vault cash instead of depositing all reserves at the central bank?

In what way to commercial banks benefit from keeping some of their excess reserves in the vault as opposed to depositing all of their excess reserves with the central bank (assuming the central bank ...
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1answer
35 views

Run On The Banks Age of Credit Cards

Is the risk of a general run on the banks greatly reduced now that most transactions are done electronically?
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1answer
47 views

Beginner wanting to learn about economics/finance to explore career options?

I want to explore the banking/financial industries more for potential career options, can you recommend any books/ free online courses and sources in general as a starting point to build on my ...
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18 views

Fed vs Treasury: 2008

Re-visiting the issue of the Troubled Assets Relief Programme (https://www.thebalance.com/tarp-bailout-program-3305895), both the Treasury and the Federal Reserve had a role to play in the "bailout". ...
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1answer
34 views

Is it possible that total virtual money i.e. total money in all bank account around the world can increase the total money produced by mankind? [closed]

I am not an expert of economics so please give advise me if I have committed any mistake. This question striked in my mind a few months ago, I tried to think on this question many times but I wasn't ...
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1answer
19 views

Central banking in Saudi Arabia

People say that central bank with autonomy is needed to avoid political business cycle but then how do we explain the existence of central bank in arab oil exporting countries like saudi arabia where ...
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2answers
57 views

Do reserves at Bank of Canada count as money?

I read the following three statements concerning M1 and M2 in Canada: a) "M1 consists of currency held outside the banks and chequable deposits of individuals and businesses." b) "M1 does not ...
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0answers
8 views

How do I find monthly domestic interest rates for Panama for the early nineties?

I am looking for monthly domestic interest rates for Panama from before December 1996. Any type of interest rate will suffice - deposit rate, money market rate, saving rate, lending rate. The time ...
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4answers
55 views

Does Efficient Market Hypothesis make anticipated monetary policies useless?

Since the market perfectly captures all the information, is it true that any anticipated monetary policy has no impact on equity prices? Or the “information” has an immediate impact but the “event” ...
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1answer
51 views

Is there a relationship between stock market hedge fund leveraging and the repo market?

Lately there have been many articles attempting to link repo-market borrowing with equity market increases. 1 I can see a link if the hedge fund is buying treasuries or mbs and financing it by using ...
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1answer
56 views

How does an increase in the minimum reserve requirement affect the monetary base?

Monetary base is defined as currency+currency held by banks+deposits of banks at central bank. We assume that the current reserve is below the minimum reserve requirement. Which component of monetary ...
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1answer
41 views

How did convicted criminals, drug runners, and gun smugglers cannibalize the thrifts and use them for their own nefarious purposes (US, 1970s & 80s)? [closed]

Randall Wray writes (2016, Why Minsky Matters, p. 172): Believe it or not, even convicted criminals, drug runners, and gun smugglers moved in to cannibalize the thrifts and use them for their own ...
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20 views

Why should government bonds have been a part of FSB rules on repo markets? [closed]

Since the financial crash, reforms have been made by the FSB, I would like to know why there is the opinion that government bonds should have been part of FSB rules on repo markets

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