ECON 101 Lecture Notes - Lecture 7: Capital Requirement, Volcker Rule, Investment Banking
24 Mar 2016
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Volcker rule: trying to distinct between investment and commercial banking. Not both, designed to deal with the problem of conlict of interest. (glass-steagal) Krugman: establish the right policies. (basically put investment. What do we have to do to restore the inancial institutions. If people start to withdraw money from the bank due to rumors, deposits will go down and net worth will drop to 1300. The bank can provide the depositor with the cash from the assets. However if more people are drawing out money and the bank do not have enough liquid cash to pay to the depositors, it will have to sell some of the securities. This will make it very diicult be cause the securities are on the stock market which is not that liquid and requires time to covert to cash. Securities (stocks and bonds) 1300 / 650 debt.
