Questions tagged [banking]

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

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Investments during recession

During Recession, banks loans decrease which leads to financial constraints and ultimately Investment suffers and declines. my question is - "Are loans lower because of demand or supply?" My ...
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One Week U.S. GC REPO Bid Rate Exceeds Ask Rate

I have recently downloaded a time-series of one-week U.S. Generalized Collateral Repurchase Agreement Rates from Bloomberg (Ticker: USRGCY1Z CURNCY). While looking through the data, I noticed that the ...
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What happens to net assets in case of increasing NPAs(Non-Performing assets)?

The bank's profit is measured as Return on Assets which is the ratio of Bank’s net profits and Net assets. In case of increasing NPAs, the bank's net profits will decrease, but what will happen to ...
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What would happen if fractional banking was phased out? [duplicate]

There are negative interest rates now and into the foreseeable future. This must mean there is too much money being offered compared to the demand for loans. Fractional banking acts as a multiplier on ...
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Can the New Development Bank by BRICS countries compete with World Bank or IMF?

The BRICS countries have created the New Development Bank with an initial pool of $100 billion. What factors will determine if the NDB can ever compete with World Bank, ADB or the IMF?
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Why was the Glass-Steagall Legislation enacted?

I realize that the part of the reason the Glass-Steagall act was enacted was to ensure that banks do not invest customer's deposits into risky securities, but what was the rationale for separating ...
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Can a bank have deposits at another bank?

Can a bank create an account at another bank and get a loan in the form of deposits at that bank? If so, could these deposits at the other bank be used to satisfy the first bank's reserve/liquidity ...
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Why do banks loan at APR < 6%, when they can invest that principal in ETFs?

I screenshot the picture beneath from HSBC HK's website. Scroll down a quarter of the way, and click on 'Rates' to download that PDF. I ask just about loans under my green horizontal line. Canadian ...
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Accounting of common stock and capital surplus for banks

I am trying to understand the accounting involved with bank capital and am a bit confused about the common stock and capital surplus lines on balances sheets. I would like to know if the following ...
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Why is common stock included in bank capital?

Capital represents the loss-absorbing capacity of a bank. I do not understand how shares issued in the past provide any indication of a bank's loss-absorbing capacity. I understand that common equity ...
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In what kind of economic environment would the cliche of “keeping money under the mattress” be warranted?

I'm trying to apply (ideally empirical-backed) economic theory to an age-old cliche. We must be very articulate about the assumptions, because if it's a total collapse of the dollar, then that ...
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Is there any mainstream criticism of the Benes-Kumhof conclusion that the Chicago Plan would improve the US economy nowadays?

A 2012 IMF Working paper by Benes and Kumhof "The Chicago Plan Revisited " has this abstract, finding in favor of the Chicago Plan an all counts basically: At the height of the Great Depression a ...
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What is the effect on money multiplier of the following three cases?

Assuming ceterus paribas in each case: (i)The bank expands its operations in the field of financial derivatives. (ii) Increasing competition leads to a fall in the transaction costs incurred by ...
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How do people check or trust that central bank is not cheating? [closed]

How people can be sure that somebody, cooperating with central bank (or working in it), is not creating money in digital or paper form for themself, so that nobody else notices it?
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Why was the Bank of England nationalized after World War 2?

After the Second World War the new Labour government nationalised the Bank of England. Did this give the British Government any new capabilities? For example, could the Government print money before ...
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Which measure of total loans is more relevant to Financial Stability?

I am writing a paper on the financial stability of the banking sector. One factor im looking at is the amount of new loans or credit issued (credit growth). I have two different total loan measures. ...
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Why does a leaseback remove the need to value the poisonous assets?

Robert Peston | 10:40 UK time, Friday, 16 January 2009 Burt is proposing a sale-and-leaseback of toxic assets. Which probably sounds like gobbledegook to you. [1.] So I'll address it in more detail ...
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How to interpret RTS in Stata?

I want to study the efficiency of banks using Data Envelopment Analysis (DEA). When I run an output-oriented DEA based on the variable return to scale I get CRS, VRS, NIRS and SCALE efficiency with ...
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Lifeboat vs bailout

I have encountered the term lifeboat in these two contexts: Floating a “lifeboat”: The Banque de France and the crisis of 1889 The 1974 rescue in the UK's secondary-banking crisis. Is the term ...
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How important are capital requirements for controlling broad money supply?

Interestingly, the Bank of England (BoE) is one of the few central banks that does not have reserve requirements. Canada, the UK, New Zealand, Australia, Sweden and Hong Kong have no reserve ...
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What's the combined wealth of the US banks?

How much is the amount of money of the US banks? In terms of: assets their own money (the banks make profits and they can keep the profits for further investments) The question is only about the ...
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In an unsterilized purchase of dollars and sale of foreign assets, why doesn't the supply of dollar assets fall?

From Mishkin (2016, p. 500): Explanation of what the supply curve here is, from p. 478: The quantity of dollar assets supplied is primarily the quantity of bank deposits, bonds, and equities in ...
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27 views

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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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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172 views

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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1answer
71 views

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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Is money mostly created (out of nothing) by banks making loans?

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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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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1answer
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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
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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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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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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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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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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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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 ...