Financial Markets - Determining of Interest Rate, II - What banks do
4 important questions on Financial Markets - Determining of Interest Rate, II - What banks do
From who do banks receive funds(=kapitaal)? What equals the liabilities of the banks? For what do banks keep some of the funds they receive?
- Banks receive funds(=kapitaal, middelen) from people and firms who either deposit funds(=geld storten) directly or have funds sent to their checking accounts.
- The liabilities of the banks are therefore equal to the value of these checkable deposits.
- Banks keep as reserves some of the funds they receive
For which 3 reasons do banks hold reserves?
- On any given day, some depositors withdraw cash from their checking accounts, while others deposit cash into their accounts.
- In the same way, on any given day, people with accounts at the bank write cheques to people with accounts at other banks, and people with accounts at other banks write cheques to people with accounts at the bank.
- Banks are subject to(=onderworpen aan) reserve requirements. The actual reserve ratio—the ratio of bank reserves to bank checkable deposits—is about 10% in the United States today.
What are the 2 types of non-reserve assets a bank have and what is the percentage distribution of them? What are the liabilities?
- Assets:
- Loans: 70%
- Bonds (bij de centrale bank): 30%
- Liabilities:
- Deposit accounts
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What are the assets and liabilities of the central bank?
- The
assets of the central bank are the bonds it holds. - The
liabilities of the central bank are the money it has issued(=uitgeven), central bank money. The new feature is that not all of central bank money is held as currency by the public. Some of it is held as reserves by banks.
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