Bài giảng Economics of Social Issues - Chapter 12 Money, Banking, and the Financial System: Old Problems with New Twists

Chapter 12Money, Banking, and the Financial System: Old Problems with New TwistsCopyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinWhat Are Banks?Commercial banksCommercial banks as financial intermediaries12-2SaversInvestorsCommercialBanksDirect investmentBankdepositsBankloansInvestment BanksStocksPartial ownershipDividendsCapital GainsBondsBonds as debtPrimary v secondary financial marketsLiquidity12-3Insurance CompaniesInsurance policiesInsurance premiums12-412-5What Is Money?Money is anything generally acceptable in payment for goods and services and in payment for debt12-6Functions of Money Medium of ExchangeMeasure of AccountStore of ValueM1Currency848.852.8%Traveler’s Checks5.30.3%Demand Deposits407.625.3%Other Checkable Deposits346.121.5%Total1607.8100.0%April 2009012-7M2M11607.819.2%Small-denomination time deposits1328.315.9%Savings Deposits4403.352.7%Money market mutual funds1019.012.2%Total8358.3100.0%April 2009012-812-9Growth Rate in M2, 1968-200812-10Commercial Banks and Other Depository InstitutionsThe Business of BankingState versus National BanksMonetary Control Act of 1980Savings and Loan InstitutionsMutual Savings BanksCredit Unions12-11Banking RegulationGlass-Steagall Act 1933Gramm-Leach-Biley Act 1999Merger wave2008 Financial crisis12-12Balance Sheet of a BankAssetsLiabilities + Net WorthReserves: Legal reserves Excess reservesLoans and investmentsFixed investmentsLiabilities: Demand deposits Time DepositsNet Worth12-13The Fractional Reserve Banking SystemLegal reservesDeposits at Federal Reserve BanksVault cashExcess reserves12-14R 2,000L 23,000DD 20,000NW 5,0001R 12,000L 23,000DD 30,000NW 11,0001R 12,000L 32,000CD 39,000NW 5,0001Money SupplyCash -10,000DD +10,000Net 012-15R 12,000L 32,000DD 39,000NW 5,000ADD +90002R 3,000DD 30,0001Money SupplyCash -1,000DD +19,000Net + 9000R + 900012-16Deposit CreationBankIncrease in Deposit ($)Increase in Loans ($)Increase in Reserves ($)110,000.009,000.001,000.0029,000.008,100.00900.0038,100.007,290.00810.0047,290.006,560.10720.9056,560.105,900.50650.6065,900.505,310.40590.10Total for all banks100,000.0090,000.0010,000.0012-17Money MultiplierD = E * 1/r D = maximum deposit creationE = excess legal reservesr = reserve ratio12-18Structure of the Federal Reserve System12-19Board of Governors7 members appointed by the President and confirmed by Congress14-year terms; reappointment prohibited if member serves full termChair of the Board selected by President12-20Federal Open Market CommitteeFOMC MeetingsFOMC Announcements12-21Federal Reserve ControlsRequired Reserve RatioDiscount RateOpen Market Operations12-22Federal Reserve TargetsInterest rate targetFederal funds rateMoney growth targetInflation targetingThe Money Supply and Interest Rates12-23Quantity of moneyInterestrateS1S1DDi1q1S0S2S0S2i0i2q2q0Quantity Theory of MoneyM x V = P x Q V = income velocity P = price level of final goods and services Q = quantity of final goods and services M = money supply12-2412-25The Financial Crisis of 2008The Home Real Estate MarketSubprime mortgagesAdjustable rate mortgages (ARMs)Financial Instruments and Accounting RulesCollateralized Debt Obligations (CDOs)Credit Default Swaps (CDSs)Marked to marketThe Events of Fall 2008Mortgage defaultsCredit crisisFannie Mae and Freddie Mac conservatorshipFederal Reserve actionsChange in structure for investment banksTroubled Assets Relief Program (TARP)Warrants12-26