ECON206 Lecture Notes - Lecture 10: Bank Failure, Money Supply, Financial Institution

• School: University of Waterloo
• Department: Economics
• Course: ECON206
• Professor: Vaughan,Maryann

Document Summary

It depends on which effect dominates and how quickly each effect takes place. (slide5-30) Bank failure: when a bank is unable to meet its obligations, so much go out of business. Bank panic/contagion effect: the risk that financial difficulties at one or more bank(s) spill over to a large number of other banks or the financial system as a whole. Payoff method: the bank is allowed to fail and the depositors are paid off according to canada deposit insurance corporate (cdic) regulations, once the bank"s assets have been liquidated, other creditors are paid off in some proportion. Purchase and assumption method: another bank takes over the liabilities of the failed bank. The central bank can provide support to troubled institutions by acting as a lender of last resort. An important function of the bank of canada. Boc can lend to banks to avert a financial crisis and maintain the stability of the financial sector.