ECON 3430 Lecture Notes - Lecture 11: Shadow Banking System, Laurentian Bank Of Canada, Interest Rate Risk
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ECON 3430 Full Course Notes
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Document Summary
Anyone can open a bank meeting certain requirements. Note issuance limited to the amount of government debt: the provincial notes act, 1866. Government issued notes after collapse of bank of upper canada: the dominion notes act, 1870. Gold standard: the first bank act, 1871. Monthly statements and audits: the bank act, 1881-1913. The finance department - lender of last resort. Gold standard dominion note conversion was stopped. Responses to change in demand conditions: adjustable rate mortgages, financial derivatives. Responses to changes in supply conditions: use of information technology. Avoidance of regulations: leads to financial innovation, 1) reserve requirement; Rr is a tax on accounts as they cannot be used. Positive settlement balance with bank of canada earns interest (cid:449)hile reser(cid:448)e didn"t: 2) restriction on interest paid. Sweep accoutns (investment in overnight securities: responses to changes in demand conditions: interest rate volatility, adjustable-rate mortgages. Flexible interest rates keep profits high when rates rise.