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MONEY CREATION AND BANKING IN MODERN ECONOMIES
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BALANCE SHEETS
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ASSETS LIABILITIES AND EQUITY Current assets Liabilities Bank account: 160,000,000 50,000,000 60,000,000 10,000,000 Loan: 100,000,000 Accounts receivable: 10,000,000 Non-current assets Equity Plant: 63,000,000 Paid-in capital: 10,000,000 Equipment: 37,000,000 Retained earnings: 150,000,000 Goods: 10,000,000
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CENTRAL BANK RESERVES
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COMMERCIAL BANK A COMMERCIAL BANK B COMMERCIAL BANK A
Liabilities and equity Liabilities and equity Assets Assets Reserves Equity Reserves Equity COMMERCIAL BANK A COMMERCIAL BANK B Liabilities and equity Liabilities and equity Assets Assets Reserves Equity Reserves Equity Reserves Equity
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CREDIT MONEY CREATION
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COMMERCIAL BANK FIRM Liabilities and equity Liabilities and equity
Assets Assets Reserves Equity Deposit Loan New loan Deposit
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CREDIT MONEY DESTRUCTION
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COMMERCIAL BANK FIRM Liabilities and equity Liabilities and equity
Assets Assets Reserves Equity Deposit Loan New loan Deposit
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CASH
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COMMERCIAL BANK FIRM Liabilities and equity Liabilities and equity
Assets Assets Reserves Equity Deposit Cash Loan New loan Deposit Cash Deposit IVAN RAJIC Liabilities and equity Assets Deposit Cash Equity
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DIFFERENT TYPES OF MONEY
(totals for the entire banking sector in the uK, in bn of £)
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- RUNNING OUT OF RESERVES (ILLIQUIDITY) -
RISKS FOR BANKS - RUNNING OUT OF RESERVES (ILLIQUIDITY) -
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COMMERCIAL BANK A COMMERCIAL BANK B Liabilities and equity
Assets Assets Reserves Equity Reserves Reserves Equity Reserves Deposit New loan Deposit Deposit New loan Deposit
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- RUNNING OUT OF CASH (ILLIQUIDITY) -
RISKS FOR BANKS - RUNNING OUT OF CASH (ILLIQUIDITY) -
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COMMERCIAL BANK IVAN RAJIC Liabilities and equity
Assets Assets Reserves Equity Cash Deposit Cash Equity Cash Deposit PERSON X Liabilities and equity New loan Deposit Assets New loan Deposit Deposit Loan New loan Deposit Deposit Loan Deposit Loan
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- NON-PERFORMING LOANS (INSOLVENCY) -
RISKS FOR BANKS - NON-PERFORMING LOANS (INSOLVENCY) -
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COMMERCIAL BANK PERSON A Liabilities and equity Liabilities and equity
Assets Assets Reserves Equity Deposit Loan New loan Deposit New loan Deposit PERSON B Liabilities and equity Assets Deposit Loan Loan
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HOW DOES THE GOVERNMENT PAY US AND HOW DO WE PAY IT?
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COMMERCIAL BANK CENTRAL BANK Liabilities and equity
Assets Assets Bank reserves Equity Assets Bank reserves Bank reserves Deposit Assets Bank reserves Gov. reserves Gov. reserves GOVERNMENT PERSON X Liabilities and equity Liabilities and equity Assets Assets Gov. reserves Gov. reserves Equity Equity Deposit Equity
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HOW ARE BANKS BAILED OUT? - WITH GOVERNMENT MONEY -
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COMMERCIAL BANK CENTRAL BANK Liabilities and equity
Assets Assets Bank reserves Equity/debt Equity Assets Bank reserves Bank reserves New loan Deposit Gov. reserves Bank reserves GOVERNMENT Liabilities and equity Assets Gov. reserves Equity
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HOW ARE BANKS BAILED OUT?
- BY THE CENTRAL BANK -
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COMMERCIAL BANK CENTRAL BANK Liabilities and equity
Assets Assets Bank reserves Equity/debt Equity Assets Bank reserves New loan Bank reserves Deposit Assets Bank reserves
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