ch123 - When you have completed your study of this chapter...

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Cobbe ECO2013 Fall 03 Chapter 12 P 1 of 16 When you have completed your study of this chapter, you will be able to 1. Explain how banks create money by making loans. 2. Explain how the Fed controls the quantity of money. 12.1 HOW BANKS CREATE MONEY < Creating a Bank To see how banks create money, we’ll work through the process of creating a bank and see how our new bank creates money. 12.1 HOW BANKS CREATE MONEY We will go through eight steps: Obtain a license to operate a commercial bank Raise some financial capital Buy some equipment and computer programs Accept deposits Establish a reserve account Clear checks Buy government securities Make loans
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Cobbe ECO2013 Fall 03 Chapter 12 P 2 of 16 12.1 HOW BANKS CREATE MONEY Obtaining a Charter Apply to the Comptroller of the Currency Raising Financial Capital Virtual College Bank creates 2,000 shares, each worth $100, and sells these shares in your local community. Balance sheet A statement that summarizes assets (amounts owned) and liabilities (amounts owed). 12.1 HOW BANKS CREATE MONEY Table 12.1 shows Virtual College Bank’s balance sheet #1. 12.1 HOW BANKS CREATE MONEY Buy some equipment and computer programs Buy some office equipment, a server, banking database software, and a high-speed Internet connection. These items cost you $200,000.
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