Questions tagged [banking]

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

Filter by
Sorted by
Tagged with
1 vote
1 answer
67 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' ...
  • 195
-1 votes
1 answer
55 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?
  • 7
2 votes
1 answer
16 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 ...
0 votes
0 answers
11 views

Representing insolvency on a T-account

Example balance sheet Section 16-3d of Mankiw's Principles of Macroeconomics textbook shows the following balance sheet: Simulator I have a simple C# program that models this sort of example. So if I ...
0 votes
0 answers
14 views

Are interbank positions branch-specific?

I have a hard time envisioning the inner workings of the interbank market. In particular, I am somewhat unsure about the role of banks vs branches. When I think about banks, I typically think about ...
  • 101
14 votes
8 answers
8k 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 ...
  • 261
0 votes
1 answer
38 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 ...
1 vote
1 answer
80 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 ...
  • 255
1 vote
2 answers
55 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 ...
  • 113
0 votes
2 answers
52 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 ...
  • 101
0 votes
0 answers
16 views

What is a "full blocking" sanction on a bank?

In the wake of the Russian invasion of Ukraine, the United States announced a range of sanctions on Russian banks. These include (Source) "full blocking sanctions on VTB Bank, Russia’s second-...
0 votes
0 answers
20 views

Does the money from Fed buying bonds go to Excess Reserves?

Suppose the Fed decides to buy $\\\$x$ of a bank's bonds. In the bank balance sheet, does the entirety of the money get added up in the bank's excess reserves (which the bank can loan out)? Thanks
0 votes
0 answers
21 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 ...
  • 9
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 ...
0 votes
0 answers
20 views

Interest and Installment

Suppose that a sum of x (in dollars) is being repaid by n equal yearly installments at a fixed yearly ...
  • 111
1 vote
1 answer
104 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 ...
  • 113
1 vote
0 answers
22 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 ...
  • 113
0 votes
1 answer
70 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 ...
0 votes
0 answers
32 views

What would happen in global bank run

Bank runs are self-amplifying. What would realistically happen if the entire earth would experience a simultaneous bank run?
1 vote
0 answers
55 views

When a country is banned from using SWIFT, what alternative ways do banks within that country still have to transfer or receive money from abroad?

If Russia invades Ukraine one of the sanctions that the west might impose is banning the banks in Russia from the SWIFT network. I've watched a short video from a financial news channel that explains ...
  • 113
1 vote
2 answers
158 views

How leveraged are banks in the United States?

My understanding of fractional-reserve lending is that it allows for banks to only keep a small fraction of raw currency in reserve, and lend out the rest. When this lent out money is put into banks, ...
0 votes
1 answer
19 views

Are major banks in US necessarily going to benefit from the rise of federal fund rates?

https://wtvbam.com/2022/01/05/fed-funds-futures-see-rate-hike-in-march-after-minutes-of-policy-meeting/ It is believed that Fed is very likely to raise the Federal Fund rates in the next a couple of ...
  • 111
5 votes
1 answer
119 views

Banking system in countries without their own currency

I am interested in the working of the banking system in countries that don't have their own currency, e.g., Ecuador or Panamá. Can you point me to studies or articles about it? For example, do banks ...
8 votes
8 answers
2k views

Are there examples of state banks in history?

Today most banking is private. Has there been any period in history where banking was (in part) state-owned and why was it privatized?
  • 255
0 votes
2 answers
269 views

What is fiat currency and what are its ledgers?

How are these ledgers maintained and who does it? A practical example would be very helpful. Thank You Edit: I was learning about the history of money and ledgers. Because Bitcoin is a ledger in the ...
0 votes
0 answers
13 views

Decoding maturity-mismatch graph

Banking basics like borrowing short and lending long seem intuitive enough for me, but when I attempt to visualize certain aspects of this business model it doesn't quite make sense. Here is a chart ...
2 votes
2 answers
137 views

How do banks restore capital adequacy ratios and what are the consequences

How do banks restore capital adequacy ratios in the event of a fall in the value of their capital? And in particular do the required actions shrink the money supply? If the actions do indeed shrink ...
  • 1,023
1 vote
1 answer
53 views

Is new money created when banks buy Treasury Bonds in primary auction?

From my understanding of the current monetary system when a bank issues a loan it is effectively creating money for the receiver of the loan i.e Mortgage. This increases the M1, M2, M3 numbers of the ...
  • 11
0 votes
0 answers
43 views

Combined Buffer Requirements Basel III

Let's take this example: A bank is required to maintain minimal capital requirements according to Basel III as follows: CET1 - 4.5% Tier1 - 6% Tier1 + Tier2 - 8% In addition it has to apply these ...
  • 11
0 votes
3 answers
103 views

Why do banks need to borrow money (i.e. bond issuance)?

When a bank gives out a loan, a simultaneous liability and asset is created on their balance sheet, and 'external' funding doesn't fit into this picture... so why do they need to borrow money?
0 votes
1 answer
55 views

Cash flow of a loan (perspective of a bank)

if you receive a loan from a bank, how does the cash flow of the bank look like? I found the following: https://fincomplete.com/ratgeber/artikel/wie-berechnet-die-bank-meine-kreditzinsen-2 (...
  • 1
1 vote
0 answers
40 views

How do currency boards maintain a 100% foreign reserve backing in the presence of fractional reserve banking?

Under a currency board system, money in circulation has to be 100% backed by foreign reserves. Suppose the domestic currency (A\$) is 100% backed by a foreign currency (B\$), with a fixed 1:1 ratio. ...
  • 525
1 vote
0 answers
26 views

Are there any state-level data on US banking regulation stringency?

In Barth, Caprio, and Levine (2008) Rethinking bank regulation: Till angels govern. Cambridge University Press, authors assemble and showcase large dataset on stringency of banking regulation and ...
  • 45.1k
4 votes
0 answers
21 views

Understanding Adam Smith's assertion about the incentives of receipt holders and bank money holders

At Chapter III of Book IV of The Wealth of Nations, Adam Smith makes the following assertion: Even in ordinary and quiet times, it is in the interest of the holders of receipts to depress the agio, ...
2 votes
4 answers
434 views

A bank approves a loan: where does the money come from?

In the naïve picture of the banking system, banks strike a balance between savings invested in them by savers and the loans requested of them by borrowers. The money loaned to borrowers is the same ...
  • 137
0 votes
1 answer
40 views

Does bank loan support affect companies in negative way?

I'm new to the economics exchange environment. My question may seem amateurish, but I did not find a satisfactory result by doing the necessary literature search. A question that has been on my mind ...
4 votes
1 answer
829 views

Is The Money Masters (1996) correct in its main thesis?

The Money Masters is a 1996 documentary film that discusses the concepts of money, debt, taxes, and describes their development from biblical times onward. Its main points were summarized by a ...
  • 501
6 votes
3 answers
389 views

Why are the financial intermediation theory of banking or fractional reserve theory of banking still accepted despite evidence to the contrary?

In most textbook economics I came across the financial intermediation theory of banking and the fractional reserve theory of banking are presented as theories as how money is created. However there is ...
  • 255
0 votes
2 answers
161 views

long run growth of money supply

I am trying to understand how the money supply (bank deposits + currency) grows over time (in the long run). start of edits I am not asking 'how do we know it grows?' or other high-level observations ...
's user avatar
0 votes
1 answer
36 views

How is it not arbitrage that EURIBOR (EUR) is around -0.5% and LIBOR (USD) is around 0.5%?

Why can I not borrow $1B of EUR at EURIBOR (pays me 50bps per year), convert it to USD (also pays me 50bps per year), lend it out at LIBOR, and collect a 1% spread? Am I missing somethign obvious? ...
1 vote
0 answers
27 views

How to understand: interest income is a moving average of past interest rates

I encounter this question in the paper by DRECHSLER et al. (2021) (Banking on deposit). How to understand that "interest income is close to a moving average of past interest rates, consistent ...
  • 11
1 vote
4 answers
93 views

What happened when the money from share issuance is spent?

Let's assume that new bank is incorporated and it issued 100 000 shares with nominal value odf $100. Let's also assume that all shares are sold for the same price, so bank now has 10 million dollars. ...
  • 11
0 votes
1 answer
49 views

is it better a low or high WACC for a company valuation?

I'm doing a statistical report of some italian banks and I'm looking for correlation between Corporate governance practices and bank values. I'm focusing on WACC and I would like to understand if an ...
1 vote
1 answer
50 views

What happens to an MBS if all the underlying mortgages are fully paid back by the borrowers much before the maturity date?

What would happen to an MBS (mortgage-backed security) if hypothetically speaking all the underlying mortgages were fully paid back by the mortgagees (borrowers), much before the maturity date? I ...
0 votes
2 answers
84 views

How does paying off debt to the bank work?

So, I understand that banks create money by making loans which end up as deposits. But what I don't get, is how paying off debt works in the big picture. Let me explain. Let's say Jim got a loan of \$...
  • 11
-1 votes
3 answers
137 views

Are stimulus checks created out of thin air? [closed]

My question is regarding the checks which the US government has sent out during the pandemic. Below is a chart of M2 money supply increase as a result of it: It is also said that 40% of all the m2 ...
0 votes
1 answer
112 views

Is the equity lending involved in naked short-selling structurally equivalent to fractional-reserve banking?

Fractional-reserve banking consists in banks lending out more money than they actually possess. This can also be seen as "money creation", or at least "money substitute creation"-- ...
1 vote
2 answers
63 views

Why would investment banks not care about their risky exposure to subprime mortgages?

At the end of The Big Short, Steve Carell's character asserts that the banks weren't acting stupid, and that they knew they were getting a bailout so they just didn't care. Why wouldn't they care? ...
1 vote
2 answers
124 views

Why would a digital Yuan (or some other national currency turned into a CBDC) "help fast-track international settlements" in that currency?

I'm trying to understand the basis of this claim As the main mode of transaction in the world's second biggest economy, China's currency should be a natural contender for the spot. However, the U.S. ...
  • 3,768
1 vote
1 answer
74 views

Why does Dodd-Frank/Basel make large cash piles unattractive?

As several major banks disclosed their financial reports recently, there seems to be much interest in the financial community as to the implications of the large cash piles at US commercial banks. The ...

1
2 3 4 5 6