tag:blogger.com,1999:blog-5538185165116620726.post7585641610569262159..comments2024-03-27T00:20:00.926-07:00Comments on Understanding the Basics of Banking: Banking Example #3.1: Capital Requirements (Stock Issuance)Tom Brownhttp://www.blogger.com/profile/17654184190478330946noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-5538185165116620726.post-9016142288687980332015-11-04T04:12:18.707-08:002015-11-04T04:12:18.707-08:00I think a simple example may be useful. Let us con...I think a simple example may be useful. Let us consider a market with a BB with the following balance sheet <a href="http://www.stevenyson.com/" rel="nofollow">cpa torrance ca</a>Richard C. Lamberthttps://www.blogger.com/profile/14766504022599651016noreply@blogger.comtag:blogger.com,1999:blog-5538185165116620726.post-60406391569784029742015-10-05T04:09:43.611-07:002015-10-05T04:09:43.611-07:00Nice to read this article will be very helpful in ...Nice to read this article will be very helpful in the future, share more info with us. Good job!<a href="http://www.easyonlinepaydayloan.com" rel="nofollow">online payday loan</a>Anonymoushttps://www.blogger.com/profile/11919184459384096448noreply@blogger.comtag:blogger.com,1999:blog-5538185165116620726.post-84363229016813476642015-06-29T04:49:44.027-07:002015-06-29T04:49:44.027-07:00On the bank balance sheets which follow, loans and...On the bank balance sheets which follow, loans and the capital requirements they induce will be colored green, <a href="http://www.millionaer-werden.club/passives-einkommen-schaffen/" rel="nofollow">money</a>Elizabeth J. Nealhttps://www.blogger.com/profile/01824134730760179008noreply@blogger.comtag:blogger.com,1999:blog-5538185165116620726.post-61732506897116858132014-10-28T05:52:04.574-07:002014-10-28T05:52:04.574-07:00On the bank balance sheets which follow, loans and...On the bank balance sheets which follow, loans and the capital requirements they induce will be colored green, while deposits and the reserve requirements they induce will be colored red. <a href="http://www.getsomedosh.com/about-us/" rel="nofollow">GetSomeDosh</a>albina N murohttps://www.blogger.com/profile/08139646674252673476noreply@blogger.comtag:blogger.com,1999:blog-5538185165116620726.post-82535604204044688932013-06-19T10:23:45.288-07:002013-06-19T10:23:45.288-07:00Hi Anne,
I'm a little confused by your questi...Hi Anne,<br /><br />I'm a little confused by your questions, but let's go through them:<br /><br />"Cash is always a liability for the Fed, yes?"<br /><br />Yes, cash is always a liability for the Fed (paper, not coins: see last two paragraphs under my "The Three Places..." post) after it has been sold to the banks. For simplicity, lets assume only paper money. When paper notes are stored at the Fed they are nothing: they don't appear on the Fed's balance sheets as an asset or a liability. The Fed paid Treasury for those notes, but only the cost of production: not the face value. They are exactly like electronic Fed deposits only in a paper format: when at the Fed they essentially cease to exist as money.<br /><br />"So when the Fed lends to Bank C, I understand that it has created an asset for itself."<br /><br />This part confuses me: the Fed has created a liability for itself after it distributes the paper money by selling it to the banks. Again, when at the Fed, the paper notes essentially don't exist.<br /><br />"However, when Bank C withdraws the $9, there is still and outstanding liability simply because cash is a liability for the Fed...? "<br /><br />In fact it's not until Bank C takes the $9 cash that the cash is a Fed liability. Assume that the bank then exchanges it's cash for electronic reserves. After the Fed receives the paper notes, it replaces them in the liabilities column of it's balance sheet with the electronic reserves and the paper notes essentially disappear in an accounting sense.<br /><br />Like I say, this is actually a different story if we were talking about coins rather than paper money. See here:<br /><br />http://brown-blog-5.blogspot.com/2013/04/the-three-places-reserves-can-go.html<br /><br />Coins ARE created as an asset of Treasury! When it sells them at a profit to the Fed this is called seigniorage (in fact though, the Treasury loses money on pennies and nickles because it costs more to produce them than their face value!). When the Fed buys them they are then an asset of the Fed until the Fed sells them, at which point they disappear from the Fed's balance sheet.<br /><br />So I think your questions are more appropriate for coins rather than paper notes, however, if it were coins I was assuming, then my balance sheets would look different.<br /><br />When I wrote this post I didn't fully understand that distinction, so I left it vague.<br /><br />This post is a little bit overly complicated. I tried to show everybody's full balance sheet which made it tough. Believe it or not, adding the cash concept was an attempt to simplify it slightly. Take a look at Example 3.2 for exactly the same concept regarding capital requirements, but with a little bit less unnecessary details.<br /><br />Hope that helps!<br />-TTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-5538185165116620726.post-92125923269314493062013-06-19T08:09:44.614-07:002013-06-19T08:09:44.614-07:00Hi Tom,
Sorry for posting so many questions today...Hi Tom,<br /><br />Sorry for posting so many questions today. I have another one.<br /><br />Cash is always a liability for the Fed, yes? So when the Fed lends to Bank C, I understand that it has created an asset for itself. However, when Bank C withdraws the $9, there is still and outstanding liability simply because cash is a liability for the Fed...? <br /><br />Am I oversimplifying things?<br /><br />AnneAnnenoreply@blogger.com