FIN 3244 Study Guide - Midterm Guide: Collateralized Debt Obligation, Shadow Banking System, Repurchase Agreement
Document Summary
Get most of their money from on demand deposits (can take out money whenever) not reliable long term. Invests in mortgage loans (30 years in most common) Mismatch in maturity of money short term deposits funding for long term loans. This is problem because if people want there money back all at once the money will not be there because the money is invested: this makes a liquidity problem. Too big to fail government wont let them fail so banks take more risks. If we get too restricted we cannot compete with overseas banking markets. Not too risky not to safe -> have to be balanced. Dust bowl: did not rotate crops (no agriculture rules, drought in midwest, part of the reason why it took 25 years to recover. The great depression was caused by a tightening of money policy: raise interest rate too high -people stop borrowing people don"t buy- prices go down- inflation is reduced.
