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Unformatted text preview: banks have to sell assets at fire sale prices (discount or “big haircut”) 39: can cover withdrawals and not lose anything but will be less profitable 40: borrow money—pay interest but does not but net worth 41: default= subtract it from your net worth 42: customers= less safe because you have lost 25% of your net capacity 43: a lot of mortgage loans= 30 years (with locked/set interest rates) 44: higher interest rate will reduce banks earnings; blue= affected by change in interest rate 46: business loans= more variable interest rates 47: initial rate= often low (teaser rate) 48: first two years have low teaser rate then adjust up for market 28 years (2/28) 51: risk of default to loan customers increases in recession (less business in general) 52: regulators do not want banks to fail 53: owe $100, only have $90—you have -10 net worth and are out of business 55: higher ER= lower ROE 61: TARP—bailouts...
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This note was uploaded on 08/29/2010 for the course ECON 302 taught by Professor Abrams during the Spring '08 term at University of Delaware.
- Spring '08
- Monetary Policy