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In fact, the picture is an OVERsimplification, but not only. Payback of debt could be considered in the same arrow of borrowing, just in opposite direction and, in fact, taking the arrow the net flow, after subtracting amortization from new gross borrowing we'd have both included... But there remains unnoticed the remuneration of those financial investments. ...


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For a bank , the basic choice of assets is between (a) loans to customers (b) invest in financial asset such as government bond (c) deposits with the central bank. Note that (c) may return a negative interest rate, so (b) may be better than (c). Holding a large amount of physical cash in the vault is not practical for a bank of any decent size, due to the ...


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Rates are always negative or zero, because they are a compensation for risk. What matters is the expected return. The nominal interest rate is a legal concept with no bearing on economics. If I lend at 5% but expect 10% defaults, the expected return is -5%. Its the same as making the nominal rate -5% and expecting full repayment. The reason banks lend at ...


2

There are many such models. A prime example would be the IS-LM AS-AD model where money supply is controlled by central bank and money can be created at will from nothing (I suppose that is what you mean by 'ex nihilo'). This model is one of the 'workhorse' models of modern macroeconomics so you can find its exposition in any textbook. If you want an ...


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The function of a bank is to take in assets and create loans. If a bank doesn't have as many assets, especially money, it can't create as many loans. One major way that banks get assets is when people give them their money for safe-keeping. If people didn't need to give their money to banks for safe-keeping, banks would have a lot less money. Therefore, they ...


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In simplified terms a bank or shadow bank (non-bank financial intermediary operating a balance sheet similar to a bank balance sheet) holds a mix of cash, marketable securities, and investment portfolio on the asset side of the balance sheet. The bank or FI issues a mix of equity, insured liabilities, and uninsured liabilities on the liabilities and equity ...


4

From a legal perspective, deposits are only protected up to the limit of deposit insurance in the jurisdiction. Beyond that, depositors need to recover their claims in bankruptcy court. However, the government might ignore the insurance limit, in the interest of financial stability. This cannot be counted on, of course.


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Unless someone can get a bank analyst to weigh in, it will be hard to get a definitive answer on this one. The first thing to keep in mind is that bank regulations and hedging practices are radically different now than in the pre-1994 era. The Savings and Loan industry was compromised by the Volcker shock (early 1980s), and many people base their views on ...


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