Money and Banking

Money and Banking - Lesson 4 The Interbank Market For...

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Lesson –4 The Interbank Market For Reserves and Instruments of the Money Market Special Report: Instruments of the Money Market, (Chapter 1) http://www.richmondfed.org/publications/research/special_reports/inst ruments_of_the_money_market/index.cfm
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Fractional Reserves—Remember the Bailey What Happens If A depositor Wants to Withdrawn $2000? asset s liabilt ies $ 1 ,0 0 0 Re se rv e s $ 1 0 ,0 0 0 De posits $ 9 ,0 0 0 Mortga ge s
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What Is The Bailey Brothers Building & Choice One —Call in Loans (i.e foreclose on Mrs Macklin’s House Choice Two ---Sell Assets Choice Three —Try to borrow money from Mr. Potter or another bank Choice Four —Jump off bridge to collect on life insurance policy
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George attempted to persuade Mr Potter’s bank to lend reserves. This is what we call today the buying of “Fed Funds”. Mr Potter was disinclined because he didn’t believe the Building & Loan was good for the money. He wanted collateral….A collateralized interbank loan is often called a “Repurchase Agreement”.
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George Decides It is Best to Jump Off Bridge
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Too Bad George Didn’t Come to Us (Rutgers National Bank), We would have sold him reserves (Fed Funds) Rutgers National Bank Clearinghouse asset s liabilt ies asset s liabilt ies - $ 10 0 RNB - $ 1 00 Re se rv e s asset s liabilt ies + 100 Reserves + $ 1 0 0 Due to RNB
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Ultimately, George is rescued by Clarence his guardian angel (or was it Ben Bernanke) The Federal Reserve could have saved George by lending reserves to the BBB&L through the Discount Window
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In the end everything works out. The taxpayers of Bedford Falls pitched in TARP monies to bail out the BBB&L
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This note was uploaded on 03/23/2011 for the course ECONOMICS 220 taught by Professor Clare during the Spring '08 term at Rutgers.

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Money and Banking - Lesson 4 The Interbank Market For...

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