ECON 3430 Study Guide - Final Guide: Canada Deposit Insurance Corporation, Global Financial System, Basel Committee On Banking Supervision

• School: York University
• Department: Economics
• Course: ECON 3430
• Professor: Brenda Spotton- Visano

Document Summary

Emergency liquidity facilities (elf) = enable the bank to lend to an institution that is solvent but struggling. Standing liquidity facilities (slf) = overnight loans to banks that had a surprise withdrawal of funds. If a bank fails: windup (cdic pays off all depositors, then sells all the bank"s assets to recover the amount paid out), purchase assumption (cdic pays banks to get an institution to take over the failed bank) Govt creates moral hazard by protecting depositors (ppl don"t monitor their banks" behavior) Govt officials are obsessed with avoiding financial crises (pay close attention to the large institutions, won"t permit them to fail). Threat of withdrawal from large corporations restrains the bank from taking on too much risk. Some proposals emphasize improved regulation of institutions (micro-regulation) or transparency in markets. Policymakers are calling for macro or systemic regulation (recognize interdependencies & feedback effects across institutions & sectors of the market)