Questions tagged [banking]

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

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0answers
34 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 ...
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2answers
103 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, ...
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1answer
16 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 ...
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1answer
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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 ...
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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?
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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 ...
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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 ...
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2answers
131 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 ...
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1answer
49 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 ...
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Banks as liquidity insurance optimisation

I'm having trouble deriving the first order condition here such that the marginal rate of substitution i.e. $\frac{\partial U c_1}{\partial U c_2}$ equals the interest rate. Here is my working so far, ...
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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 ...
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3answers
96 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?
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41 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 (...
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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. ...
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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 ...
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What does the term "non-commercial, patient equity" mean in its entirety?

Source: https://www.undp.org/sites/g/files/zskgke326/files/publications/2018%20DREI%20Off-Grid%20Full%20Report%20Final%20(20190306).pdf (pg. 15) This term is used to describe financing in solar mini-...
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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, ...
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4answers
304 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 ...
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1answer
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 ...
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1answer
294 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 ...
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3answers
310 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 ...
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33 views

What are the liabilities of a bank?

Particularly in this context I have come across topics like: 1.Margins held against letters of credit/guarantees. 2..Balances in overdue fixed deposits. 3.Cash certificates and cumulative/recurring ...
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2answers
111 views

long run growth of money supply

I am trying to understand how the money supply (bank deposits + currency) grows over time. That's the end goal. This is the first part of my awful struggle. I'm superconfused, and almost everything I ...
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1answer
32 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? ...
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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 ...
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4answers
88 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. ...
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1answer
24 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 ...
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1answer
46 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 ...
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2answers
79 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 \$...
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3answers
121 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 ...
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1answer
96 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"-- ...
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2answers
60 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? ...
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113 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. ...
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1answer
72 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 ...
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2answers
152 views

Can banks 'create' money on their own or do they need help from other banks?

My current understanding of the banking money multiplication process goes as follows: Alice comes along and deposits 100 cash into Bank A. Bank A gains 100 in vault cash (reserves) as an asset and 100 ...
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1answer
31 views

How to determine the riskparamter PD, EaD, LGD for the IRB-Ansatz | Basel II

A company borrows $100 million from Bank A. According to Basel II, the bank must have a certain amount of equity for this balance sheet item in order to grant the loan. The exact amount of equity can ...
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1answer
85 views

What would happen in a modern economy if growth plateaus?

According to a Wikipedia article on a United Nations report, The UN Population Division report of 2019 projects world population to continue growing, although at a steadily decreasing rate, and to ...
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1answer
38 views

why federal fund rate vs treasury bond yield generally move in the same direction?

My own thought is, if the fed lowred federal fund rate, peoole should look for investment with greater return, like treasury bond. More demand=decline in yields but why do they generally move in the ...
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2answers
74 views

How does fed cutting federal fund rate affect student loan

If fed cuts rate, it means it's cutting federal fund rate right? then why do loans like credit card and stuend loan? those aren't like Mortgage rate which the fed cuts its rate by buying MBS
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1answer
100 views

Why Banks give more discounts/offers on Credit Card as compared to Debit Cards?

Whether a credit or debit card is used to make a payment at a merchant, there will be outflow of money from the bank. What extra benefit do the bank get from promoting credit more than debit card? Is ...
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1answer
64 views

Why is Keynes attacking the (neo)classical theory of interest rates on the grounds that it is indeterminate?

I do understand that he argues that in order to draw the loanable funds supply curve, you have to already know the volume of income, i.e. production, and therefore the interest rate in advance. But ...
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1answer
73 views

loanable funds theory: why is the supply of loanable funds equal to saving (+ dishoarding + new money)?

It seems that the loanable funds theory suggests that all that is saved is supplied in the market for loanable funds. This makes sense when we are talking about 'household saving' (i.e. household ...
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2answers
51 views

Will banks in the US continue to offer CDs?

Earlier this year, the Fed abolished the reserve requirement. My understanding was that the motivation for banks offering CDs was because the Fed didn't impose reserve requirements on CDs, so banks ...
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1answer
41 views

Model with money creation

is there any macro model/paper introducing money creation (ex nihilo money creation) ? I would be very interested in reading them.
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0answers
38 views

Bank Reserve ratio

It's known that the money multiplier is 7 and the ratio of cash held by the public to their deposits is 1 to 20. Which of the following must be the bank's reserve ratio? My attempt, Money multiplier=1/...
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2answers
77 views

What happens with corporate deposits when a bank goes bankrupt?

When a bank goes bankrupt the money of the private individuals who saved in that bank are lost but a part of the money are guaranteed by the government. But say for example Apple has 10 billion ...
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3answers
152 views

Why would a CBDC (Central Bank Digital Currency) be good for the economy?

I've read about CBDC, how it could be a cryptocurrency like digital payment system, that could replace fiat currencies. But what I don't get is what value would it give to the economy? Someone who ...
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2answers
184 views

How do low interest rates negatively impact bank earnings?

A lot of Banks are focused on bread and butter lending to small businesses and consumers. Many of those are putting aside provisions for loan losses in the wake of the Covid-19 pandemic. Headlines ...
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12answers
9k views

Why do banks take deposits if they do not need them to make loans?

I have taken some economics courses in university, where I was introduced to fractional-reserve banking. From my understanding, in fractional-reserve banking, the bank has motivation to encourage ...
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1answer
107 views

Can the money multiplier happen within a single bank / a single loan?

Many tutorials explain the money multiplier effect by involving a chain of banks (e.g. khan academy) So if reserve requirements are 10% and bank A owns 1000€ reserves, bank A can lend 900€ to bank B; ...

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