Bernstein who spent two years as a researcher at the Fed has a rare insider knowledge of how that system works. Many of his insights are counterintuitive. He explains effortlessly how the Federal Reserve and commercial banking system interact. Thanks to him I now understand that the relationship between the Federal Reserve and banks is very similar to the one between banks and consumers. We have deposit accounts at banks that give us the necessary credits to withdraw cash from ATMs. Banks hold reserve deposits credits at the Fed that give them the right to withdraw currency.
Bank run - Wikipedia
In the same manner that our cash withdrawals directly reduce our deposits by the same amount; banks currency withdrawals reduce their reserves at the Fed by the same amount. But, we are the ones who really drive bank currency withdrawals from the Fed. Banks withdraw cash from the Fed to meet the volume of our own ATM withdrawals. Bernstein explains how the Government has little control on how much cash we keep on hand and how much we deposit in banks. This is the main leak customers holding cash of the deposit-loan money creation system.
Whatever one would think is outdated within this book is very interesting from an historical standpoint. In Chapters 13 through 15 where he covers the economic history of the U. Good item, Thank you: Kindle Edition Verified Purchase. Outdated but has a good basis on the banking system. Berstein is the best.
Customers who bought this item also bought
Clear, comprehensive and commonsensical. The only problem is when you read the book and examine our current economic situation you will realize as I did that we're in a lot of trouble! I read it and thought that reading "Modern Money Mechanics" would bring me up to speed. One person found this helpful.
- ?
- FADE (Girls Gone Wild Book 1).
- .
Need to finish it to give a better review. See all 16 reviews. Amazon Giveaway allows you to run promotional giveaways in order to create buzz, reward your audience, and attract new followers and customers. Learn more about Amazon Giveaway. Set up a giveaway. Customers who viewed this item also viewed. The Alchemy of Finance. Pages with related products. See and discover other items: There's a problem loading this menu right now. Learn more about Amazon Prime.
Get fast, free shipping with Amazon Prime. Get to Know Us. English Choose a language for shopping. Explore the Home Gift Guide. Amazon Music Stream millions of songs. Amazon Advertising Find, attract, and engage customers. Amazon Drive Cloud storage from Amazon.
The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King – review
Alexa Actionable Analytics for the Web. AmazonGlobal Ship Orders Internationally. Amazon Inspire Digital Educational Resources. Amazon Rapids Fun stories for kids on the go. Amazon Restaurants Food delivery from local restaurants.
ComiXology Thousands of Digital Comics. East Dane Designer Men's Fashion. Shopbop Designer Fashion Brands.
Follow the Author
Withoutabox Submit to Film Festivals. Amazon Renewed Refurbished products with a warranty. Amazon Second Chance Pass it on, trade it in, give it a second life. According to the model, the bank acts as an intermediary between borrowers who prefer long-maturity loans and depositors who prefer liquid accounts. In the model, business investment requires expenditures in the present to obtain returns that take time in coming, for example, spending on machines and buildings now for production in future years.
A business or entrepreneur that needs to borrow to finance investment will want to give their investments a long time to generate returns before full repayment, and will prefer long maturity loans, which offer little liquidity to the lender. The same principle applies to individuals and households seeking financing to purchase large-ticket items such as housing or automobiles. The households and firms who have the money to lend to these businesses may have sudden, unpredictable needs for cash, so they are often willing to lend only on the condition of being guaranteed immediate access to their money in the form of liquid demand deposit accounts , that is, accounts with shortest possible maturity.
Since borrowers need money and depositors fear to make these loans individually, banks provide a valuable service by aggregating funds from many individual deposits, portioning them into loans for borrowers, and spreading the risks both of default and sudden demands for cash. If only a few depositors withdraw at any given time, this arrangement works well.
Barring some major emergency on a scale matching or exceeding the bank's geographical area of operation, depositors' unpredictable needs for cash are unlikely to occur at the same time; that is, by the law of large numbers , banks can expect only a small percentage of accounts withdrawn on any one day because individual expenditure needs are largely uncorrelated. A bank can make loans over a long horizon, while keeping only relatively small amounts of cash on hand to pay any depositors who may demand withdrawals. However, if many depositors withdraw all at once, the bank itself as opposed to individual investors may run short of liquidity, and depositors will rush to withdraw their money, forcing the bank to liquidate many of its assets at a loss, and eventually to fail.
A bank run can occur even when started by a false story. Even depositors who know the story is false will have an incentive to withdraw, if they suspect other depositors will believe the story. The story becomes a self-fulfilling prophecy. Merton , who coined the term self-fulfilling prophecy , mentioned bank runs as a prime example of the concept in his book Social Theory and Social Structure. A bank run is the sudden withdrawal of deposits of just one bank.
A banking panic or bank panic is a financial crisis that occurs when many banks suffer runs at the same time, as a cascading failure. In a systemic banking crisis , all or almost all of the banking capital in a country is wiped out; this can result when regulators ignore systemic risks and spillover effects. Systemic banking crises are associated with substantial fiscal costs and large output losses. Frequently, emergency liquidity support and blanket guarantees have been used to contain these crises, not always successfully. Although fiscal tightening may help contain market pressures if a crisis is triggered by unsustainable fiscal policies, expansionary fiscal policies are typically used.
In crises of liquidity and solvency, central banks can provide liquidity to support illiquid banks.
- .
- A Long Day (Ticonderoga Book 3).
- Schmankerl-Rezepte (einfach besser kochen) (German Edition).
- .
- the Wacky Misadventures of Warble McGorkle;
- !
- !
Depositor protection can help restore confidence, although it tends to be costly and does not necessarily speed up economic recovery. Intervention is often delayed in the hope that recovery will occur, and this delay increases the stress on the economy. Some measures are more effective than others in containing economic fallout and restoring the banking system after a systemic crisis. Speed of intervention appears to be crucial; intervention is often delayed in the hope that insolvent banks will recover if given liquidity support and relaxation of regulations, and in the end this delay increases stress on the economy.
Programs that are targeted, that specify clear quantifiable rules that limit access to preferred assistance, and that contain meaningful standards for capital regulation, appear to be more successful. According to IMF, government-owned asset management companies bad banks are largely ineffective due to political constraints. A silent run occurs when the implicit fiscal deficit from a government's unbooked loss exposure [ clarification needed ] to zombie banks is large enough to deter depositors of those banks. As more depositors and investors begin to doubt whether a government can support a country's banking system, the silent run on the system can gather steam, causing the zombie banks' funding costs to increase.
If a zombie bank sells some assets at market value, its remaining assets contain a larger fraction of unbooked losses; if it rolls over its liabilities at increased interest rates, it squeezes its profits along with the profits of healthier competitors. The longer the silent run goes on, the more benefits are transferred from healthy banks and taxpayers to the zombie banks. The cost of cleaning up after a crisis can be huge. Some prevention techniques apply across the whole economy, though they may still allow individual institutions to fail.
The role of the lender of last resort, and the existence of deposit insurance, both create moral hazard , since they reduce banks' incentive to avoid making risky loans. They are nonetheless standard practice, as the benefits of collective prevention are commonly believed to outweigh the costs of excessive risk-taking. The bank panic of is the setting of Archibald MacLeish 's play, Panic.
A run on a bank is one of the many causes of the characters' suffering in Upton Sinclair's The Jungle. From Wikipedia, the free encyclopedia. For the video game, see Bank Panic. List of bank runs and List of banking crises. The Banking Panics of the Great Depression. Handbook of international banking.