When I first started out in the record business, and was struggling to get
by, my Aunt Joyce was kind enough to give me a small loan.
In my case, as maybe in yours, my aunt had heard through the
family grapevine that I needed a loan, and when I came knocking on
her front door, she was prepared with her offer. I was incredibly grateful,
took it very seriously, and paid her back—with generous interest—as
soon as I was able.
That loan kept the Virgin Records recording studio afloat. It gave
me the time and resources I needed to make my business a success. And
many years and...
A final way banks raise funds in the money market is through repurchase agreements (RPs). An RP is a
sale of securities with a simultaneous agreement by the seller to repurchase them at a later date. (For the
lender—that is, the buyer of the securities in such a transaction—the agreement is often called a reverse
RP.) In effect this agreement (when properly executed) is a short-term collateralized loan. Most RPs involve
U.S. government securities or securities issued by government-sponsored enterprises. Banks are active
participants on the borrowing side of the RP market. ...
We start by discussing the role of explicit deposit insurance in the financial safety net as well as the
peculiar features of different deposit insurance schemes across countries. We review both the
theoretical literature and the empirical evidence on the topic. We then move to investigate how
deposit insurance is likely to affect interest rates in the banking sector. We collect data on different
economic and financial variables, as well as institutional indicators, for a set of 80 countries.
The need for a money market arises because receipts of economic units do not coincide with their
expenditures. These units can hold money balances—that is, transactions balances in the form of currency,
demand deposits, or NOW accounts—to insure that planned expenditures can be maintained independently
of cash receipts. Holding these balances, however, involves a cost in the form of foregone interest. To
minimize this cost, economic units usually seek to hold the minimum money balances required for day-to-
Demand depends on two factors demand transaction from dn and households, the interest rate impact on demand. and the demand for assets. money supply based on: + annual growth rate of kt + the cost of goods index (inflation) + budget deficit + deficit of the balance of international payment + credit channel (discount) budget + channels (government loans and loan) + central bank released the money to buy foreign currency reserves.
This book is intended as a practical guide to the interpretation
of reports and accounts. In it frequent reference is
made to the legal, accounting and UK Listing Authority’s
requirements that accounts have to meet, but this is done
in the context of what interesting information to look out
for, rather than to show how a set of accounts should be
You’ve found your dream house. The neighborhood
is perfect. The schools are great. The kitchen has
everything you want.
You’ve negotiated a good price. You’ve signed reams
of paperwork. And you open an escrow account.
Then your mortgage broker calls. Remember the
great interest rate she quoted you last week? You
don’t qualify for it. She says there are some problems
with your FICO score. Your interest rate is going
to be higher by almost four percentage points.
It is diﬃcult to discern exposures from institutions’ reported credit market posi-
tions. Indeed, common data sources such as annual reports and regulatory ﬁlings record
accounting measures on a large and diverse number of credit market instruments. Ac-
counting measures are not necessarily comparable across positions. For example, the
economic value of two loans with the same book value but diﬀerent maturities will react
quite diﬀerently to changes in interest rates. At the same time, many instruments are
close substitutes and thus entail essentially the same market risk.
Private investors may need to isolate their cash flows to debt , usually only a single mortgage, from the cash flows to equity, usually their savings. Private investors may need this information to record any shortfall between rent received and loan interest, for personal income tax measurement.
Sectoral differences in core business activities and risk exposures are well reflected in the
balance sheets typical of firms within each sector. In order to illustrate such differences,
stylised balance sheets for institutions from each sector are presented in Annex 2 of the
report for explanatory purposes. These stylised balance sheets suggest the following broad
The majority of a bank’s assets typically consist of loans and other credit exposures, while
the majority of liabilities consist of deposits payable on demand and other short-term
This pattern has two main implications. First, if we take loan size as a proxy for the
poverty of customers (smaller loans roughly imply poorer customers), microfinance banks
appear to serve many customers who are substantially better-off than the customers of
nongovernmental organizations. Second, banks will have an easier time earning profits
(assuming that a large fraction of the cost of making loans is due to fixed costs).
The LIBOR is the London Interbank Offered Rate, which is used as a reference rate in loan
transactions between banks. The LIBOR floor, introduced in recent years to help enhance
bank loan yields in extremely low interest rate environments, is around 1%–2% (note that
until LIBOR reaches the “floor” level, bank loan returns do not increase with rising rates).
The credit spread is the market-determined spread paid to the investor for taking on the
credit risk (historically the normal range has been 3%–8%, depending on the riskiness of a
Together, the empirical facts established in this paper suggest that capital regulation and
buffers may only be of second order importance in determining the capital structure of most
banks. Hence, our paper sheds new light on the debate whether regulation or market forces
determine banks’ capital structures. Barth et al. (2005), Berger et al. (2008) and Brewer et al.
(2008) observe that the levels of bank capital are much higher than the regulatory minimum.
This could be explained by banks holding capital buffers in excess of the regulatory
The third result links this permanent component to monetary authorities
behaviour. Recently, G¸rkaynak, Sack and Swanson (2003) show that
the change in expectations of the long-run ináation rate by private agents
depend on macroeconomic and monetary surprises. Moreover, the relationship
between ináation, interest rates and monetary policy has been studied for a
long time and, for example, since the seminal paper of Mankiw and Miron
(1986), a signiÖcant number of papers have studied the relationship between
monetary policy and the rational expectations theory....
Even though the Committee is not currently proposing mandatory capital charges
specifically for interest rate risk in the banking book, all banks must have enough capital to
support the risks they incur, including those arising from interest rate risk. If supervisors
determine that a bank has insufficient capital to support its interest rate risk, they must
require either a reduction in the risk or an increase in the capital held to support it, or a
combination of both.
But while there are differences in profitability and target markets, there are not big
differences in loan portfolio quality. The top row of Table 3 reports on the quality of loan
portfolios for different kinds of institutions, and we show that all in fact do quite well. We focus
on nongovernmental organizations, non-bank financial institutions, and banks. For each group,
the range of experience is captured with data at the 25th
percentile, median, and 75th
This paper discusses the effects of bank competition on bank loan and deposit rate levels as well as on
their responses to changes in market rates and, hence, on the monetary policy transmission mechanism.
Given the prominent role of the banking sector in the euro area’s financial system, it is of significant
importance for the ECB to monitor the degree of competitive behaviour in the euro area banking
market. A more competitive banking market is expected to drive down bank loan rates, adding to the
welfare of households and enterprises.
This paper uses interest rate data that cover a longer period and that are based on more harmonised
principles than those used by previous pass-through studies for the euro area. We find that stronger
competition implies significantly lower interest rate spreads for most loan market products, as we
Furthermore, when lenders institute non-interest charges such as fees to compensate for
interest rate ceilings, they effectively raise the cost of credit for all successful borrowers.
Therefore, while a ceiling may reduce the explicit price of credit (interest rate), it may not
result in lower overall costs of borrowing even for those able to obtain loans. Additionally,
non-interest charges make it more complicated for customers to comprehend the total cost
of borrowing and more difficult to make well-informed credit decisions.
Our approach is motivated by the statistical ﬁnding that the market value of ﬁxed
income instruments exhibit a low-dimensional factor structure. Indeed, a large literature
has documented that the prices of many types of bonds comove strongly, and that these
common movements are summarized by a small number of factors. It follows that for any
ﬁxed income position, there is a portfolio in a few bonds that approximately replicates
how the value of the position changes with innovations to the factors.