The Bank of Canada
The Payments System
Chartered Banks: receive deposits and make
loans- largest institutions in the banking
Credit Union: a cooperative org – receives
deposits from and makes loans to its members
& caisses populaires operates in Quebec.
Trust and Mortgage privately owned –
receive deposits, make loans and act as trustee
for pension funds and for estates.
Is a private firm that take deposits from
households and firms and makes loans to
other households and firms.
3 types of depository institutions:
1. Chartered banks
2. Credit Unions and caisses populaires
3. Trust and Mortgage Loan companies
The Banking System
Central bank- a public authority, which
supervises other banks and financial institutions,
markets and conducts monetary policies. The
bank of Canada is special in 3 ways:
1. Banker to banks and gov’t
2. Lender to the last resort
Economic Benefits: Create Liquidity by borrowing short and lending long. Pool Risk lend to many
& risk is pooled- don’t lose out on much. Lower the cost of borrowing borrowers don’t have to
hunt out for loans- only have to go to one place.
Depository institutions earn income by using funds they receive
and to make loans and buy securities that earn higher interest than
that paid to depositors. (To achieve it, must perform a balancing
act weighing return against risk)
A chartered bank puts the funds it receives and borrows in 4 types
Reserves: notes and coins to meet depositor’s currency
withdrawal- about half of one percent of deposits as reserves.
Liquid Assets: T bills and commercial bills that are liquid and
can be sold w no risk involved.
Securities: Like gov’t of Canada binds can be converted into
reserves but at prices that fluctuate- these are riskier that liquid
assets, but they also have a higher interest rate.
Loans: commitments for an agreed upon time- riskiest because
they can’t be converted until the due date.