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
2
votes
1answer
111 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 ...
1
vote
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 ...
1
vote
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 ...
2
votes
1answer
82 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 ...
6
votes
3answers
479 views

What does Varoufakis mean by 'banks can make up money' in 'Talking to my daughter about the economy'?

Varoufakis' book contains some arguments and explanations. I don't have the book in English with me, so this is a 'free translation' of a couple of points (bold is mine): "Contrary to the ...
8
votes
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 ...
4
votes
3answers
161 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 ...
1
vote
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 ...
1
vote
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?
6
votes
3answers
195 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 ...
1
vote
0answers
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 ...
6
votes
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 ...
1
vote
0answers
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 ...
3
votes
3answers
301 views

Sanity of lending out made-up money

Background I've done some research to get an understanding into the issue I want to ask about. Regrettably, I found out general descriptions of the mechanism and/or evidently biased explanations, ...
1
vote
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?...
3
votes
3answers
260 views

By what steps and contracts does new money enter the economic system?

Like many noneconomists who read about economic history and finance, I always remain somewhat baffled by the opaque generation of currency under the federal reserve system. My understanding is that ...
1
vote
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 ...
2
votes
2answers
45 views

Methods or models to predict activity of clients of a bank?

I'm a Physicist but I'd like to know if there are some methods or models to predict the activity of the clients of a bank. I heard that banks are interested in this sort of analysis so I got curious ...
7
votes
1answer
19k views

How much money is wire transferred every year worldwide?

How much money is wire transferred every year worldwide? Estimates are fine.
3
votes
2answers
123 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 ...
2
votes
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 ...
2
votes
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 ...
4
votes
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 ...
0
votes
0answers
30 views

Federal Reserve conditions [duplicate]

Does the Federal Reserve have conditions attached to the money that's created and distributed to major banks?
3
votes
3answers
184 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 ...
1
vote
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 ...
3
votes
1answer
274 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 ...
6
votes
2answers
5k views

When was fractional reserve banking introduced?

According to Wikipedia's history of banking article: Modern banking practice, including fractional reserve banking and the issue of banknotes emerged in the 17th century. The article on fractional ...
3
votes
1answer
148 views

Bank rate and Repo rate

Please explain the difference between Bank rate and Repo rate. Do the Bank and Repo rates affect each other?
3
votes
1answer
172 views

Why will these steps NOT fix the problems with LIBOR?

I am new to finance and recently came across the LIBOR scandal that happened some time in 2008. From my limited understanding of finance, it looks like a scandal that was obviously going to happen and ...
1
vote
1answer
163 views

How would banking in UK change if minimum required capital to open own bank would be £100k instead of €5m?

DIRECTIVE 2013/36/EU Article 12 Initial capital Without prejudice to other general conditions laid down in national law, the competent authorities shall refuse authorisation to ...
0
votes
1answer
86 views

How would banking in EU change if taxpayers withdrew their support for Deposit Guarantee Scheme?

Disclaimer The question pertains mostly to EU but I believe counterparts to Deposits Guarantee Scheme exist world-wide. Assumption Let’s suppose that support for liberal ideas and free market rises ...
3
votes
0answers
89 views

Large banks collapsing verses a single countries economic decline [closed]

Please excuse anything i get wrong here i am in no way a economics expert but i am interested in the subject. Earlier today I saw someone make a post about how banks like CitiGroup have been given $...
3
votes
1answer
58 views

Could the Troika's economic plan work for Greece?

There are a number of things that are confusing me about the current Greek financial crisis. The first is this. Is it plausible that if Greece did everything the Troika asked then the Greek ...
5
votes
1answer
161 views

Why shutdown the banks (Greece)?

What benefit is there to shutting down the banks in Greece? It seems that this would do more harm than good. Won't this impede economic growth by not allowing companies and startups access to capital? ...
1
vote
1answer
76 views

Is the lack of information on customer behaviour good for banks?

Discussing chapter 18 on Microeconomic Theory Basic Principles and Extensions - Nicholson and Snyder book - regarding Asymmetric information a student raise an interesting point of view regarding the ...
1
vote
1answer
67 views

Do banks pay for deposit insurance?

Under deposit insurance, if my bank goes bankrupt, the government reimburses my deposit up to a specified maximum. Do banks pay for this insurance, and does it depend on their risk-taking? If not, ...
0
votes
2answers
131 views

What do banks do with “Repaid Principal”?

When a bank receives payments towards repayment of the principal of a loan, it is called "Repaid Principal". What does a bank do with this amount? Does "Repaid Principal" add up to their pool of ...
6
votes
3answers
227 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 ...
6
votes
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 ...
10
votes
1answer
215 views

How does a bank convert one currency to another?

Say for example I sell ZAR and buy USD. What happens behind the scenes so that the local ZAR bank is able to deposit USD into my account? Does the bank require some sort of USD cash reserve? How do ...
6
votes
2answers
138 views

Who regulates the balancing of the books for commercial banks? How? Is it public information?

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
2
votes
1answer
344 views

How is monetary policy fair in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
6
votes
1answer
325 views

How is monetary policy sustainable, or even fair, in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. I'm trying to wrap my head around this from multiple points of view, since it brings about a lot of ...
16
votes
4answers
4k views

Why is fractional reserve banking allowed?

I learned about banks' fractional reserves and that revolted me. How is that not considered to be fraud? The idea doesn't seem too sophisticated, on the contrary, it sounds very simple: the bank ...
2
votes
1answer
60 views

What will happen to the reserves at the Fed?

Banks currently have 2.7 trillion Federal Reserves that they hold at their Federal Reserve account. It's part of the monetary base and these reserves were created when the Fed purchased bonds in their ...
8
votes
2answers
1k views

What is the necessity of the FDIC in the US banking system?

A bank's basic function is to "borrow short and lend long". In other words, it borrows money from depositors over the short term, promising to repay it on demand, while it lends most of that money out ...
3
votes
1answer
214 views

Understanding the impact of Subprime Mortgages crisis on investment banking

I'm interested to know the exact magnitude of impact of Subprime Mortgages crisis on major players in investment banking. In particular, how can I find data for percentage of revenue from Subprime ...
4
votes
3answers
187 views

If all Banks in the world are emptied..?

What would happen if every person in the world pulled their money out of their bank accounts?
4
votes
2answers
132 views

If banks started simply depositing money with each other, then what else?

[Source:] If banks started simply depositing money with each other, all else aside, then what would happen? Keep in mind that the interest rate is basically the price of money. Supply-and-demand would ...