《bank,money课件》HO_MB2e_ch12.pptVIP

* * * Notes: Central banks should provide short-term loans to banks that are illiquid but not insolvent. By lending to insolvent banks, the Fed increases the level of moral hazard in the system. * * * Notes: Figure 12.7 provides a summary of the process of financial crisis, regulation, financial system response, and regulatory response in the context of the Fed’s role as lender of last resort. * * Notes: With less competition, banks paid relatively little for deposits, and could charge lower interest rates on loans. They were the leading lenders to households and firms. But whenever market interest rates rose above the Regulation Q interest rate ceilings, large and small savers had an incentive to withdraw money from bank deposits, thereby starving banks of the funds they needed to make loans. * Notes: Automatic transfer system (ATS) accounts allowed customers to earn interest by “sweeping” a customer’s checking account balance at the end of the day into an interest-paying overnight repurchase agreement. Teaching Tips: Ask students what would the analysis of adverse selection predict about the type of borrowers that banks will eventually make loans to in the case of disintermediation. * Notes: Depositors were allowed to write only six checks per month. The costs of these deposits to banks were low because the banks did not have to hold reserves against them or process many checks, so the banks could afford to pay higher interest rates on them than on NOW accounts. The combination of market interest rates and the safety and familiarity of banks made the new accounts instantly successful with depositors. * Notes: Figure 12.8 provides a summary of the process of financial crisis, regulation, financial system response, and regulatory response in the context of interest-rate ceilings. * Notes: Beginning in 1979, sharply rising market interest rates increased the cost of funds for SLs, decreased the present value of their existing mortgage assets, and caused their net wo