1. Financial markets channel funds from savers to investors, affecting both personal wealth and business decisions. They include bond, stock, and foreign exchange markets.
2. Financial intermediaries such as banks borrow from savers and lend to borrowers, helping overcome problems of asymmetric information and transaction costs.
3. Regulation of financial systems aims to increase information to investors and ensure soundness of intermediaries, helping prevent panics through measures like disclosure requirements and deposit insurance.
11. Federal Reserve Balance Sheet (January 2010 vs July 2009 vs July 2008) ($ Billions, H.4.1 Release, Table 10) Assets Liabilities + Capital T-Bills (18/18/22) Federal Reserve Notes (879/870/793) T-Notes/Bonds (708/618/402) TIPS (47/48/40) Depository Institution Deposits (1,135/809/23) Federal Agency Debt (161/102/0) Mortgage-Backed Securities (969/526/0) Repurchase Agreements (0/0/117) Reverse Repurchase Agreements (64/66/43) Term Auction Credit (76/274/150) U.S. Treasury, General Account (124/65/4) Primary Credit (18/34/14) U.S. Treasury, Supplementary Financing (5/200/0) Secondary Credit (1/0/0) Seasonal Credit (0/1/1) Asset-backed CP MMMF Liquidity Facility (0/8/0) AIG Credit (25/43/0) Term Asset-back Security loan Facility ((298/26/0) Foreign Official Deposits (3/2/2) Commercial Paper Funding LLC (14/111/0) Money Market Investor Funding (0/0/0) Maiden Lane I, II, III LLC (64/60/29) Capital Paid In (26/25/5) Surplus (25/21/3) Central Bank Liquidity Swaps (6/112/62) Other Capital (1/4/1) Total Assets (2,295/2,074/913) Total Liabilities & Capital (2,295/2,074/913) Italicized accounts represent new policy tools
23. Asymmetric Information Adverse Selection Moral Hazard Stopping âbad credit risksâ from becoming borrowers Stopping borrowers from becoming âbad credit risksâ Screening process Monitoring process Loan applicants Approve Deny Loan signing date Performing Non-performing A situation where 1 party has more info than the other party Loan department Collections department potential bad credit risks are the ones who most actively seek out loans the lender runs the risk that the borrower will engage in risky activities that make it less likely that the loan will be paid back â The business of banking is the business of collecting informationâ Good C.R. Bad C.R. 2 types