Questions tagged [banking]

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

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11 views

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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56 views

How does the private bank reserve increase when money is being withdrew?

The federal government raises 400 million by selling bonds to the general public in order to pay for a construction program. The program cost 440 million so the government withdraws 25 million from ...
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23 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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3answers
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Do privately owned banks ever indefinitely lend money to their owners?

By privately owned bank, I mean specifically a bank that is not registered as a corporation with publicly tradable shares. Does it ever happen that such banks create money by lending it to their own ...
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224 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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252 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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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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139 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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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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How does the money supply behave when bank loans are repaid?

In a fractional reserve system when banks lend out money, that money is created out of thin air by a accounting journal entry, and the money supply goes up by the amount of the loan & when the ...
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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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141 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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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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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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88 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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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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Unclear reasoning for the specific inclusion of categories of complexity in the GSIB buffer setting

Based on [Basel Comittees Methodology] paper for GSIB buffer setting (https://www.bis.org/publ/bcbs255.pdf), they compute the complexity of a bank based on: (i) notional amount of over-the-counter (...
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Breaking Up The Big Banks [closed]

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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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 the ...
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87 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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3answers
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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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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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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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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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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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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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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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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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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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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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Why does Visa pay Chime?

When you buy something, the merchant pays Visa a couple of percent. This is how Visa makes money. This is called the interchange fee. But apparently, Chime gets part of this interchange fee which ...
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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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Why did Mexico have such a high deposit rate in the 70's despite fixed exchange rate?

Why did Mexico have a high deposit rate in the 70's? Why would a bank want to pay the public such a high interest rate?
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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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254 views

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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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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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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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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Corporate governance models

I am trying to understand which corporate governance model Millennium BCP, which is a Portuguese bank, uses in its Management model. I read that there are three systems: the monist/one tier, the Anglo-...
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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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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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114 views

Why do commercial banks buy government bonds at negative interest rates instead of keeping cash?

I know commercial banks need to meet liquidity requirements, but why would they choose to invest their money in an instrument that is guaranteed to give them a negative return, instead of just keeping ...
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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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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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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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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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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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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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