Analytic pressure-volume diagrams are utilized to illustrate the effects of gasoline engine design on performance and combustion requirements.
The conventional wisdom goes like this — depositors prefer to hold liquid risk-free assets and borrowers prefer to borrow for the long-term to invest in risky projects.
Banks sit in the middle of this process and perform a sort of alchemy. By performing this alchemy, banks leave themselves open to the risk of bank runs — if all the depositors seek to withdraw their money at the same time, even a bank with otherwise sound loans as assets can go bust.
This perceived risk of a bank run is why governments and central banks provide deposit insurance and liquidity facilities to the banking sector, a privilege that is not typically available to other financial intermediaries.
In other words, banks exist for the purpose of maturity transformation. Maturity transformation is a nice catch-all phrase but it subsumes some very different lending activities conducted by banks. For example, banks can help businesses to finance their working capital needs and provide financing against customer invoices.
This function is as old as banking itself. It is what bankers did in the prosperous city-states in Italy in the 15th century. But most of these debts are short-term debts with a maturity of less than a year. There is no reason to believe that society does not have the risk appetite to take on the default risk of such short-term debt and as I shall show later, there is significant evidence of this already happening in the United Kingdom today.
In the modern era, banks also provide a range of short-term lending options to consumers such as credit card loans.
Again this is short-term debt that forms part of a well-diversified pool of loans. Again, although this is also technically maturity transformation it is typically not what most of us think as the primary purpose of maturity transformation.
Again this is not a homogeneous category. The most significant component of bank lending on such a long maturity in many countries is mortgage lending. Mortgage lending is undoubtedly an important part of the financial landscape.
But very little of the maturity risk of mortgages actually stays with the originating banks. The interest rate risk is often hedged away with willing counterparties such as pension funds and life insurers and the credit risk is often securitised away.
What most people think of when they think of the role of banks is their role in providing long-term loans to businesses. The popular press is rife with the inability of banks to lend more to small and medium enterprises SMEs and how this is holding back economic growth. It is an obvious truth that banks make very few unsecured loans to SMEs on even a year maturity, let alone a 30 year maturity.
But does this matter? And did banks ever engage in such lending? To understand the modern mythology surrounding bank lending to businesses, we need to study the history of bank lending to industry.
In the United Kingdom, bank lending has never formed a significant component of business funding for growth investment even during the high-growth periods of the 19th century. The quintessential example of banks as long-term investment institutions arose in Germany between and the First World War.
In an era when financial crises were frequent and banking was risky, German banks figured out how to profitably fund long-term investment projects without bankrupting themselves in the process.The chapter then moves on to a discussion of the critical role of governments in choosing the appropriate combinations of monetary, fiscal, trade, investment and social policies to create an economic environment that is conducive to the attainment of food security.
Course Area: Not a general education course Designations: Formative Experiences This accounting internship is designed for College of Business students who desire to gain real-world experience in the accounting field through on-the-job practice.
† The lectures will very closely follow my lecture notes. There are two other general textbooks available: Romer, which should be familiar and Blanchard and Fischer. The latter is harder but covers more material.
The lecture notes combine the approaches of and adapt materials in both books. What is CBO’s estimate of the deficit for ? What was the budget deficit for ? CBO’s latest estimate (reported in May ) is that, if the laws governing taxes and spending generally remain unchanged in fiscal year (which ends on September 30), the deficit for the year will total $ billion, equal to percent of gross domestic product (GDP).
These are notes on orthodox macroeconomic theory. Originally written during the summer of in preparation for Econ97 (Senior Seminar) at Wabash College, they It is assumed that you have completed a course in intermediate macro and bring this intellectual capital to bear in reading these notes.
In particular, you should understand. 1. Introduction to Economics Lecture Notes 1. Economics Defined - Economics is the study of the allocation of SCARCE resources to meet unlimited human wants.