BUS-F 446 Lecture Notes - Lecture 7: Yield Curve, Deposit Insurance, Commercial Bank
Document Summary
Inflation is the way out of government debt problems; inflation targeting prevents increasing deficit in order to wipe out the debt. Strategies to deal with the fact that weekends aren"t counted: weekend game shift deposits to another bank to get interest on it during the weekend, sweep account rebate higher returns back to depositors. Undershooting: computation/maintenance period help you see how much to set aside, undershooting: less than you"ve calculated. Too much creates attention from regulators: to fix undershooting: Borrow more money either fed funds (from other banks) or repurchase agreements; or discount window borrowing directly from the fed. Overshooting: more reserves than you need try to lend them out or carry it over, balance risk versus return; cash immediacy versus opportunity cost. Deposit accounts are highly movable and liquid with high funding costs. Cds (certificates of deposit) can be either retail or wholesale. Banks have increased liquidity risk for assets, decreased for liabilities.
