ECON-UA 1 Lecture Notes - Citibank

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Insurer of bank accounts: fdic (federal deposit insurance corporation)[created:1933, up to ,000, us hasn"t had a banking panic since 1933, downside: need someone else to do oversight fed, regulation of lending, prevents insolvency, sets capital requirements, bank capital = shareholder"s equity, se must be a minimum percentage of the bank"s ious, forcing bank"s owners to have more at stake if loans go bad, prevents insolvency, stabilize macroeconomy, dual mandate , full employment (approx. Citi bank (when the fed buys something they do so with reserves: bond dealer deposits fed check, citi bank presents check to fed + exchanges it for reserves, rr 10% of ,000 = ,000, so the bank has ,000 excess reserve, bank lends out excess reserve of ,000, cash is spent and re deposited in bank #2, rr 10% of 90,000 = 9,000, so the bank has ,000 in excess reserves, bank lends out excess reserve of ,000.

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