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Banking and Money Creation, Take asset > liabilities - Coggle Diagram
Banking and Money Creation
What Banks do
financial intermediary
Shows T-account
Analyzing Financial Position
Liabilities
Assets
Reserves deposits
regulated by
Required reserve ratio
Reserve ratio
Lend depositors' money--> investors :
Bank Reserves=Federal Reserves
bank vaults
bank deposits
The Problem of Bank Runs
Reason 2: Spreading Rumors
Reason 1 : withdraw money at the same time
financial conditions
illiquid
Bank Regulation
Deposit Insurance by FDIC
guarantee depositors from loss---> feel secure
Banks take more risks
Depositors Not monitoring financial health
Capital Requirement
percentage requirement
Reserve Requirement by Federal reserve
Need to keep Minimum percentage of deposits
Discount Windows by Federal Reserve
=lending option
To cover withdrawals
Take asset > liabilities