Questions tagged [banking]

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

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2answers
844 views

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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77 views

VaR and rating for commercial banks

I would like to know if there exist a database where Value at risk of commercial banks are. Beyond that if there is a connection between the rating from agency (as S&P, Fitch etc..) and the VaR ...
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251 views

What Happened in 2008?

Some say "housing crash" but I suspect the existing global banking system imploded. Am I off-base, or ...? In my experience, CME S&P futures, for example, require a performance bond of something ...
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4answers
8k views

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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1answer
57 views

Total amount of bank loans in a country

I am looking for total amount of customer loans banks are giving in a country. I can find data for US at http://research.stlouisfed.org/fred2/series/CLSACBW027SBOG However I am looking for ...
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3answers
163 views

what percentage of a banks money do they lend

Say a bank has 1 billion dollars deposited by individuals with bank accounts. How much of this does the banks lend/invest? Obviously it can't lend all of it or when I go to the bank there would be no ...
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1answer
42 views

In a bank-based economy, how do banks determine how to split the economic pie with the businesses?

In an economy with a bank-based financial system (little or no stock market activity allowed), I think I've got this much down: The banks lend to businesses, who then make products and services. The ...
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1answer
268 views

Are there countries with free banking?

Are there any countries in which banks do not need to follow any special regulation other than the regular business regulations. If not, are there any countries that come close? For more information ...
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1answer
46 views

How is short-term borrowing by banks in the US performed?

I read a statement that one reason for persistent demand for US Treasuries is that US banks buy them because they can be used as collateral for acquiring short-term debt. I don't understand this. If ...
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0answers
53 views

Does only enough money exist to pay the principal on all debts, and none for the interest or for anything else?

This is reported to be the testimony of Marriner Eccles, Governor of the Federal Reserve Board, before the House Committee on Banking and Currency, on September 30, 1941. Does this mean that only ...
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5answers
619 views

Could massive derivatives exposures at banks lead to disaster?

A while back I posted this question about the possible risks of banks having massive derivatives exposures. The most upvoted answer (by BKay) said that there was little risk because banks mainly hold ...
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2answers
281 views

How does the central bank changing interest rates change interest rates in the commerical banking sector?

I understand that the federal reserve manipulates the federal fund rate in order to change interest rates in the wider banking sector. What I am struggling to understand is how the changing the ...
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1answer
389 views

If banks create money by lending it out, how are they taking any risk?

When I lend money to someone and they don't pay it back, I lose my money. I can only lend out money that I own (or borrow). I understand that when a bank lends money, that money is created the ...
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1answer
69 views

Is there collaboration between cyber criminals and banks?

In disease evolution, one often finds that bacteria and viruses evolve to co-exist with their hosts and become less malevolent. Making an analogy between cybercrime and disease, I am wondering if ...
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1answer
30 views

What guarantees that for every credit there is a debit in an electronic fund transfer?

I'm worried about the difference between seeming honest and actually being honest. I know banks rely in part on a good reputation to stay in business. But it seems to me that as long as a bank has a ...
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0answers
21 views

Where does the value of implicit government banking guarantees end up?

Post-Lehman a widespread political agenda has established to minimize implicit government guarantees to banks. However, in the buid-up of new banking regulations, lending to small and mid-sized ...
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0answers
34 views

Explaining the size of the canadian banking sector

Canadian banks are among the largest in the world and I think that only the UK compares in terms of having your economy dominated by banking. Of course some of the US banks are much larger but so is ...
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1answer
40 views

If central banks become shareholders, where can investors go?

The ECB is buying corporate bonds. It could eventually also buy shares. What would be left for investors to invest in? Letting bank shareholders pay for bailouts resulted in crashes of their shares. ...
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3answers
14k views

Why hasn't massive derivatives exposures at banks already led to disaster?

I recently heard that Deutsche Bank had $72trillion of "derivatives exposure", which is many times greater then the entire German GDP. Now as I understand it, derivatives are essentially just bets ...
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33 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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1answer
25 views

Basel affecting the bank behaviour?

In EU, Banks have changed their behaviour lately, e.g. as acting liquidity providers to certain markets like notes etc. Introduction of Basel III is probably one reason (tighter capital and ...
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1answer
576 views

Solvency and liquidity. How to understand them? Should Central Banks only lend to solvent but illiquid banks?

Solvency: Long-term liabilities are covered by assets(with value measured at maturity, not at market-to-market) Liquidity: short-term liabilities are covered by assets which can be sold in the short-...
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0answers
49 views

Do you have a list of books about the evolution of the banking sector?

I'm looking for interesting books to read about the banking sector. Topics: Changes in the banking sector, Adaptation of financial services in the digital age, European and US banking regulations ...
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3answers
163 views

How can the share price of a company be less than its (theoretical) liquidation value?

A recent article from Bloomberg states that Deutsche Bank's share price is less than half its theoretical liquidation value. According to Investopedia, liquidation value is defined as: The total ...
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1answer
130 views

How did the Bail-In in Cyprus Work?

I've seen some articles online about the Cyprus-style bail-ins When the bail-in actually happened there, they took money from people's accounts, but from where did they take the money? For example, ...
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1answer
2k views

How often do banks borrow from the Federal Reserve?

Though I've seen plenty of articles talk about in what circumstances banks borrow from the Fed, I haven't seen any quantification on that note. On average, what percent of the money that banks lend ...
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3answers
197 views

What is Islamic Banking?

What is "Islamic banking," and how is it similar to and different from banking as it occurs in the U.S.? I have heard Shariah Law prohibits usury, the taking of interest on loans. How do Muslim ...
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0answers
159 views

Bail-in and equity absorbing losses

Below we have a diagram for a bail-in. According to it, as the big company/bank takes a loss in the asset side, the first to absorb those losses, in the liabilities side, is equity. How is this ...
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1answer
112 views

Why do we need base money at all?

For example, we could imagine an arrangement like this: There are currently \$0 in the economy. A business takes out a \$50 loan. The bank sets there bank account to \$50 - \$50 debt = \$0 net. The ...
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2answers
81 views

How can economies grow if every account is perfectly balanced against others?

In an economy with finite actors, if every account is perfectly balanced against another account, how can the economy grow when new money enters? I am thinking of the following chain of events: The ...
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1answer
83 views

Why do banks need to write-off the debt against Shareholders capital invested

I have seen the basic equation that rules this system: $$ Assets = Liabilities + Equity $$ @Alecos Papadopoulos has a really great answer that totally makes sense for this question. But, I would ...
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0answers
24 views

Why is Double-entry Bookkeeping always equal? (Part 2)

In this question, with answer here Destroying the Dollarhypothetically a hack is used to trick whatever programme is used to make sure accounts balance, so say a transfer is made from Bank manager A ...
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1answer
110 views

What does Leverage ratio mean in context of Banking sector and how is it different from CRAR?

There are several definitions of Leverage Ratio in context of Banking Sector but it seems like it is no different from CRAR (Capital Adequacy Ratio), could someone explain what's the real difference ...
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2answers
6k views

Why does deflation cause banks to increase their interest rates?

I have read that in a deflationary spiral, lower prices cause banks to increase their interest rates. Is this true and what is the logic behind it?
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54 views

A country with dual payment system

Is there any country with dual domestic payment system? For instance, in the USA there are CHIPS or Fedwire both help wire transfer of USD within the USA. They give services to international ...
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2answers
112 views

Why do banks and stock exchanges close/have fixed hours?

Banks and stock exchanges all around the world seem to adhere to quite a strict regime of 9-5, Monday - Friday, in the countries local time. This can have the effect of where an event that happens ...
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3answers
228 views

Fractional reserve banking and the value of someone else's currency

Suppose there are two countries: $A$ and $B$. $A$ is a large, stable, democratic country with its own currency, the dollar. $B$ does not have its own currency. All prices and financial transactions in ...
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2answers
289 views

How to find interest rates with fractional reserve banking?

As I understand it, interest rates are set by supply and demand, like any price. Money can be thought of like any other finite commodity. Lenders are willing to supply a certain amount of money at ...
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1answer
122 views

Measuring demand for banking services - (Maximum) Market Size

I am in need of a variable measuring "demand for banking services" in general, on a country level. Specifically the (maximum) size of the market for banking services for a given country. This will be ...
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1answer
85 views

Can one bank be the correspondent bank of itself?

http://www.investopedia.com/terms/c/correspondent-bank.asp Correspondent bank is like a delegator in a country to operate on behalf of the delegatee who doesn't normally has established business in ...
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42 views

Is Eurodollar borrowing close substitute for Fed funds borrowing?

It is often stated that eurodollar borrowing is clost substitute for Fed funds borrowing. In other words, when US banks cannot fund themselves domestically, they might go to the eurodollar market and ...
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0answers
58 views

Is the ECB a lender of last resort for european governments?

One of the usual functions of a Central Bank is to be the last resort of commercial banks, and governments. Does the ECB behave in this usual way toward European Governments? What about toward banks?...
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3answers
519 views

Why isn't the Fed funds rate greater than interest rate on loans to the pubic

First of all, fed funds rate is the rate banks borrow reserves' from each other. Interest rate on loans is the rate the bank charges to public for its loan. From one line of logic, we think of the ...
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2answers
124 views

Fractional reserve banking and bank insolvency

I am trying to understand the fractional reserve banking system (with say 10 % reserve ratio). If a bank becomes insolvent because 100 % of the loans of a bank go bust, then who really becomes liable ...
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1answer
19k views

How much money is wire transferred every year worldwide?

How much money is wire transferred every year worldwide? Estimates are fine.
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3answers
185 views

Does the current situation of excess reserve imply failure of QE?

Excess reserve @ Fed In the past it was assumed that excess reserves should be kept around 0 and banks should be lending to each other as much as they are borrowing. The central banks would correct ...
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1answer
183 views

Federal Reserve capital injections

What were the specific conditions that the Federal Reserve attached to the capital injections forced upon the major Wall St. banks during the Great Recession? How and why do they differ from normally ...
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30 views

Federal Reserve conditions [duplicate]

Does the Federal Reserve have conditions attached to the money that's created and distributed to major banks?
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1answer
29 views

Why monthly present in on line monthly payment calculator calculates as annual percent divided by 12?

Why monthly present in on line monthly payment calculator calculated as annual percent divided by 12? I think it's wrong, it should be exponential. For instance annual percent 4%. To calculate monthly ...
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1answer
276 views

How does the fractional reserve banking system work?

I would like to understand better exactly how this works. I have heard a lot recently (particularly since the 2007-08 crash and Occupy movement) about money creation in particular (usually with a very ...