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Banking and Money Creation - Coggle Diagram
Banking and Money Creation
The Monetary Role of Banks
Bank Regulation
FDIC
Capital Requirements
Reserve Requirements
federal reserve rules determining bank's required reserve ratio
Deposit Insurance
deposit insurance guarantees payment up to a maximum per account
Bank's Capital
the excess of a bank's assets over its bank deposits and other liabilities
The Problem of Bank Runs
bank would unable to pay off all of deposits
lose safety
sell off assets very cheaply
loss of faith
causing additional bank runs
What Banks Do?
Bank: Financial Intermediary
Bank Reserve: Currency in bank vault
bank deposits held at the Federal Reserve
banks are required to maintain assets larger than their liabilities
Determining the Money Supply
How Banks Create Money
create new money by leveraging deposited funds
Currency in Circulation
cash used by the public, not held by banks.