A bank may make loans only if it has some available

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A bank may make loans only if it has some available reserves – determined by the Fed. There are 3 involve in the creation of money - the person who borrow the money - the bank that creates the money - the Fed, which allow this creative act to occur The Destruction of Money Money is destruct whenever loans are pay back Ms The most important commercial bank loans are commercial and industrial loans, although consumer loans have grown considerably in importance since WW II Limits to Deposit Creation Why can’t bankers keep issuing loans by increasing the checking accounts of their customers? 1) Prudence: Most banks would try to keep about 2% of their DD as reserve 2) The Fed sets legal requirements to which the banks must adhere. BANK REGULATION; BRANCH BANKING & BANK CHARTERING Branch Banking vs. unit Banking Banking is legally defined as accepting deposits
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Branch banking is the acceptance of deposits at more than one location. Since interstate banking is not (yet) legal, branch-banking rules are set by the state in which a bank is located. Example: Bank of America – California Unrestricted Branching Bank may open branches throughout the state e.g. B of A, Crocker National Bank and Wells Fargo have branches all over CA. Restricted Branching or Limited Branching A bank may be allowed to open branches only in contiguous communities Unit Banking State law forbids any branching whatsoever. A bank that opens an office that receives deposits at a particular location can’t open any other branches. This obviously restricts the size of banks in those states. STATE AND NATIONALLY CHARTERED BANKS To operate a bank, you must get a charter. More than 2/3 of the nation’s banks has state charters; the rest have national charters. National Charters Issued by the comptroller of the currency and are generally harder to obtain than state charters State Charter Issued by each of the 50 states To get a Bank Charter you need to demonstrate 3 things: 1) That your community needs a bank or an additional bank 2) That you’ve enough capital to start a bank 3) That you are of good character Most large banks are nationally chartered. Often the word national will appear in their names. All nationally chartered banks must join the Fed. State banks may join the Fed, but few have done so and many left because of high reserve requirement. All Fed member banks must join the FDIC. Nearly all banks are members of FDIC. The Federal Deposit Insurance Corporation (FDIC) - The FDIC was set up by Congress in the 1930s after the massive bank failures. - The FDIC taxes its members 23 cents for every $100 dollars of deposits in exchange for insuring all member bank deposits of up to $100,000. - The whole idea of the FDIC is to avert bank panics
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The Too-Big-To Fail Doctrine 1984 by Todd Conover , Comptroller of the currency The Savings and Loan Debacle Will the commercial banks go the way of the S&Ls?
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