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Banking and FIs 10
Banking and FIs 10

... Banks have Special Asset Management units which do nothing but manage defaulted or near defaulted customers Once in default, banks will often take control of the company as “senior creditors”, sell all remaining company assets and use the proceeds to repay “creditors” in order of seniority If a bank ...
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... spending multipliers from very conventional macroeconomic models. We used simulations based on the realistic assumption that monetary policy would remain loose [ie, low interest rates], and on the assumption that people would treat the individual tax cut as permanent. This last assumption is justifi ...
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... greater money supply need not necessarily cause inflation and reduced money supply need not always reduce inflation either. In fact as observed in the paper, inflation has decreased over the years even when money supply has been increased. This points out that money supply alone does not affect infl ...
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... fool’s errand. Bubbles are easy to identify after the fact but much harder (or impossible) to identify beforehand. In the absence of (the near impossible) success in correctly identifying bubbles beforehand, efforts to address bubbles beforehand run the severe risk of squelching efficient and produc ...
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Fractional-reserve banking

Fractional-reserve banking is the practice whereby a bank accepts deposits, and holds reserves that are a fraction of the amount of its deposit liabilities. Reserves are held at the bank as currency, or as deposits in the bank's accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide.Fractional-reserve banking allows banks to act as financial intermediaries between borrowers and savers, and to provide longer-term loans to borrowers while providing immediate liquidity to depositors (providing the function of maturity transformation). However, a bank can experience a bank run if depositors wish to withdraw more funds than the reserves held by the bank. To mitigate the risks of bank runs and systemic crises (when problems are extreme and widespread), governments of most countries regulate and oversee commercial banks, provide deposit insurance and act as lender of last resort to commercial banks.Because bank deposits are usually considered money in their own right, and because banks hold reserves that are less than their deposit liabilities, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying reserves of base money originally created by the central bank. In most countries, the central bank (or other monetary authority) regulates bank credit creation, imposing reserve requirements and capital adequacy ratios. This can limit the amount of money creation that occurs in the commercial banking system, and helps to ensure that banks are solvent and have enough funds to meet demand for withdrawals. However, rather than directly controlling the money supply, central banks usually pursue an interest rate target to control inflation and bank issuance of credit.
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