Alomar_111_201 Chapter 14: Money Creation. Alomar_111_202 How commercial banks can create checkable deposits and issue loans? By this, money is created!

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Presentation transcript:

Alomar_111_201 Chapter 14: Money Creation

Alomar_111_202 How commercial banks can create checkable deposits and issue loans? By this, money is created! What is a commercial bank? Commercial bank: an institution that receive deposits and make loans Bank’s balance sheet: assets and liabilities

Alomar_111_203 2 banks: Two different banks in general: The central bank: The Central Bank of Kuwait, The Federal Reserve (the Fed) The commercial banks (NBK, GB...)

Alomar_111_204 Bank’s balance sheet Assets: cash, deposits at other banks, deposits at the Fed, commercial papers, securities, loans Liabilities: checkable deposits, saving deposits, time deposits,

Alomar_111_205 Functions of commercial banks Open accounts (checkable, saving, time…) Providing loans (different dimensions…) Services to businesses Other services…

Alomar_111_206 The central bank Since commercial banks play an important role in the economy (why?)… the central bank is the institution that supervises commercial banks: Inspection of records Inspection of activities Required reserve Liquidity requirements Insurance

Alomar_111_207 Functions of the CB Supervising commercial banks Bank of the last resort “bank of the state” Determining the discount rate Selling and buying government’s bonds

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