Balance Sheet of the Banking Industry Assets Liabilities Net worth Loans 1000B

Balance sheet of the banking industry assets

This preview shows page 32 - 36 out of 37 pages.

Balance Sheet of the Banking IndustryAssetsLiabilities& Net worthLoans $1000Bdeposits: $1000BReserves $100BNet worth $100BIt was estimated that nearly half of all banks had a neg. net worth during the Great RecessionSay the Fed sets the required reserve ratio (RR) is 10%. Is it met? Q: The Fed buys $10 B of bonds from the public in an “open market operation.” How many things change above?
Image of page 32
: 33
Image of page 33
Q: When the Fed buys bonds (i.e. an “open market purchase”), all else equal, bond prices ____ and interest rates _____. Q: The faed can easily change the amount of money in the economy. How?? Q: Why are banks so important and why were so many bailed out in2008? 34
Image of page 34
Part D: What is the Fed? The Fed (Federal Reserve) is one of many central banks Functions conduct monetary policy interest rates (control inflation and max employment) regulate banks and financial system operate as a bank for banks banks have deposits/reserves there banks can barrow from the Fed and the “discount rate” (vastly less important than the federal funds rate Serve as the " lender of last resort” to prevent financial collapse during a crisis lend at the discount rate
Image of page 35
Image of page 36

You've reached the end of your free preview.

Want to read all 37 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture