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BUSI 3405U (11)
Bin Chang (11)
Lecture 4

BUSI 3405U Lecture 4: Week 4

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BUSI 3405U
Bin Chang

Week 4 Canadian Banking Source of Fund Liability Demand and Notice Deposits Fixed Term Deposits Borrowings Bank capital Demand deposit: payable on demand; that is, if a depositor shows up at the bank and requests payment by making a withdrawal, the bank must pay the depositor immediately. For example, a checking account. Notice deposit: notice requirement. But the notice requirement is never enforced. So it is just like demand deposits. Obligation related to borrowed security: when an investment bank short sells a security, it generates cash for itself and shows the obligation to repay the loan. Capital: cushion against a drop in the value of its assets, which could force the bank into insolvency Cash reserve: deposit in Bank of Canada. No interest. Cash items in process of collection: suppose that a cheque written on an account at another bank is deposited in your bank and the funds for this cheque have not yet been received (collected) from the other bank. This cheque is an asset for your bank because it is a claim on other bank for funds that will be paid in a few days. Basics of Banking 1: first deposit Bank discovers that only 10 of the 100 is needed as a reserve It decides to keep reserves of 10 or 10 It decides to lend out 90 The 90 loan just allows the individual to withdraw cash, but they either leave it on deposit or pay someone else who in turn deposits it! Basics of Banking 2: Money Creation Process the 90 loan comes to another bank as a deposit It now has another 90 in deposits and Keeps 10 or 9 as a reserve Lends out 81 Basics of banking 2 so the 90 loan comes back to the bank as a deposit A 100 B 100*90 C 100+90^2
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