ECON-UA 1 Lecture 29: 29
8 Feb 2017
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Ious- government bonds, corporate bonds, student loans what happens when defaults are 10m shareholder"s equity goes down by 10m, remaining with 7. 5m. million in ious become worthless updated balance sheet: Withdrawals at one bank need not create insolvency problem. Se: m assume: checking account holders withdraw million from this bank bank sells million of ious at full value. . 5m other liabilities (borrowed funds + other non- checking deposits) ***unregulated banking system is an automatic destabiliser lending stops ip a y causing recessions to become depressions central bank designed to counter the destabilising in the economy that unregulated banking system causes. 12 federal reserve bank presidents (selected by votes distributed between member banks and board of governors) only 5 can vote on fomc decisions federal open market committee (fomc) all is designed to make the fed individual from government.
