ECON-002 Lecture Notes - Lecture 17: Money Supply, Reserve Requirement, Federal Open Market Committee
27 Mar 2017
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Document Summary
When depositors go to banks and try to withdraw their entire life savings. Making bad loans, still have to pay back their depositors. Toxic assets (bad securities); were not worth what the bank thought they were worth. Excessive borrowing in order to alleviate the toxic asset and bad loan situation. In china: rumor arose that the bank refused to give a depositor back their money; eventually there was a run on the bank . Cyprus also had a big problem after us recession (march 2013); cyprus bank was holding bad loans, also had to deal with greek government debt. When greece engineered its debt swap, all the. Greek government bonds that cyprus banks had became toxic assets. Ukraine (2014): failing loans, risky government debt, plus too much borrowing to be paid back in euros. The price of hryvnia falls (the ukranian currency), and that borrowing becomes much more expensive. Once banks realize what trouble their in, they stop making loans.
