Questions tagged [banking]

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

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1answer
45 views

What is the difference between a bank's Treasury department and ALCO?

I know that the treasury manages and controls the bank's capital. While the Asset-Liability Committee deals with the assets and liabilities in order to stay solvent, right? What are the similarities ...
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2answers
118 views

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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1answer
22 views

Can a commercial bank lend money from transaction/checking account as it would from a deposit account?

Transaction/checking accounts are highly liquid - M1 Deposit accounts are less liquid - M2 Per fractional reserve system, banks lend deposited money as credit to clients provided they keep a reserve ...
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1answer
34 views

Would saving money outside of banking system be able to reduce monetary base?

First of all, here is definition of monetary base taken from Investopedia A monetary base is the total amount of a currency that is either in general circulation in the hands of the public or in ...
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2answers
132 views

What will happen to a poor country’s economy if it replaces its entire banking system with the Islamic banking system?

I don't know much about economics. So, I am just curious about the Islamic banking system. What I understand is: I know that the USA is the dominant economy and the USD is the dominant currency in ...
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1answer
175 views

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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1answer
19 views

Central banking in Saudi Arabia

People say that central bank with autonomy is needed to avoid political business cycle but then how do we explain the existence of central bank in arab oil exporting countries like saudi arabia where ...
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2answers
52 views

What justifies the authority of a bank to create money when they make loans?

This is somewhat of a political or philosophical question. As explained by the Bank of England and elsewhere, the majority of broad money is created by credit to banks' accounts when they make loans. ...
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1answer
35 views

Moderation effect of a variable [closed]

Should we include some control variables in regressions when we test a moderation effect of a variable?
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1answer
31 views

statistics about loaning tradeoff

It is very likely that Banks have more loans that have been repaid compared to loans that have not been repaid. Otherwise the bank would lose money instead of money. (otherwise the bank will go ...
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1answer
48 views

Banks and Stock Market in Germany

Why does Germany have such a small stock market, but very large powerful banks?
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1answer
31 views

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
50 views

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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1answer
215 views

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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1answer
48 views

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 ...
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2answers
107 views

Bank Capital and Profit

I am struggling a bit with understanding the meaning of capital ratios, and bank profitablity. It seems to me that capital requirements stipulate that a certain fraction of banks' risk weighted assets ...
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1answer
198 views

Open market purchase of securities and it's effect on balancesheet

An open market purchase of securities lead to increase in bank reserves ( Liability side) and increase in assets(asset side) of central bank balance sheet. My doubt is why it leads to increase in ...
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1answer
327 views

Difference between Unit Banking and Direct Banking

As the title says, I want to understand the differences between Unit Banking Systems and Direct Banking Systems. Here are the few questions that'll help me understand: Direct banks provide remote ...
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1answer
414 views

Isn't the liquidity trap about real interest rates?

Here is a so-called thought experiment. Suppose the inflation rate is negative, the nominal interest rate slightly negative, and the real interest rate positive (call it $r$). I think people would ...
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1answer
251 views

Do credit cards create more printed money

As far as I know, when people take a loan from a bank, most of the loan value is electronically printed money, i.e. money that did not exist before. Is it also what happens with consumer credit cards? ...
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5answers
140 views

What is a dollar, currently?

What is the definition of a dollar now without gold backing? It seems that a dollar is now just an entry in a book somewhere in some bank. Or it is the federal reserve note? Or is it both? I ...
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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
860 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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1answer
42 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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2answers
149 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 ...
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1answer
324 views

What is the impact on the money supply of a reduction in the required reserve ratio? [closed]

In April 2011, the money supply was estimated to be 52 million hurls. At the same time, bank reserves were 6.24 million hurls and the reserve requirement was 12 percent. The banking industry, being “...
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3answers
77 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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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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1answer
24 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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0answers
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
77 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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1answer
22 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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0answers
38 views

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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0answers
22 views

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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0answers
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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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0answers
22 views

How do personal finance banking apps make money?

There are a bunch of apps and start ups, like Qapital and Varo that helps you save money. Some of them has monthly fees, but not all of them. How else could a company like that make any profit, if ...
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0answers
32 views

Must US Treasury backstop US Federal Reserve?

The Constitutional Case for the Fed's Treasury Backstops | Cato @ Liberty writes no, I think? But I don't quite understand the financial terms iike "lever-up", backstop", "helicopter money". I looked ...
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0answers
18 views

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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47 views

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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1answer
91 views

Bank maturity mismach

So my question is about maturity mismatch and what is the appropriate method to calculate it. I have seen some simplified examples in academic books but, when I tried to approach it in a holdings bank,...
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0answers
23 views

What would be the possible effect on a country's economy if private banks are declared as non-profit?

Suppose, there are 100 banks in a country. 50 of them are government owned. What would be the possible effect on a country's economy if private banks are declared as non-profit? I.e. they can not ...
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0answers
60 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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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
31 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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3answers
110 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
72 views

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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1answer
374 views

Would this alternative to fractional reserve banking work?

While reading the answer to Implications of abolishing Fractional Reserve Banking on mortgages and interest rates, I started to wonder if there wasn't a simple solution to the problems that would ...
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3answers
93 views

Does Shadow Banking (i.e. non-Commercial Banking) produce transaction-useful money?

In shadow banking amongst primary dealers & large institutions...I understand repurchase agreements function similar to deposit accounts (Gorton, et al). Additionally, I understand how traditional ...
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2answers
149 views

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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1answer
51 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 ...