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9 Cards in this Set
- Front
- Back
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Banking emerged from... |
a side business for medieval goldsmiths; People held receiptsfor their gold on deposit: these cameto be used as cash. also invented the fractional reserve system |
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Shadowbank |
a nondepositoryfinancialinstitution that engages inmaturity transformation; don’t takedeposits,BUTthey are vulnerabletobank runs, since they borrow short term andlend (or invest) longer term. |
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Maturitytransformation |
conversion ofshort-termliabilities (deposits) into long-term assets (loans) |
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Assetbubble |
price ofanasset pushed unreasonably high by expectations offurther price gains. |
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financialcontagion |
a vicious circle amongdepositorybanks or shadow banks.Each bank’s failure worsens fears and increasesthe likelihood that another bank willfail. |
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Now policy makers use three main strategies toprotect economies from the harm of bank crises: |
1.Theyact as the lender of last resort. 2.Theyoffer guarantees todepositors. 3.Inextreme crises, central banks will step in and provide financing to private credit markets. |
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Lenderof last resort |
an institution (usually acountry’s central bank)thatprovidesfunds to financial institutions whenthey are unable to borrowfrom the private credit markets |
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fiscal stimulus |
expansionary measures like governmentspending or tax cutsto promote spending and reduce unemployment |
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fiscal austerity |
contractionary measures like spending cutsortax increases to reducebudget deficits |
