Chapter 2 – Management of Banking and Financial Services, 2nd Edition

Chapter Two

 

1. Demand deposits’ are, as the nomenclature implies, deposits repayable to the depositor on demand. In India, this category includes ‘savings bank’ and ‘current’ deposit accounts.

2. The money multiplier is not to be confused with the income multiplier, which is also important to fiscal policy.

3. Critics of fractional reserve banking allege that maintaining reserves may not altogether eliminate banking panics. If banking assets are insufficient to compensate all depositors, the liquidity risk would still remain.

4. However, critics of the bank rate argue that the bank rate could influence the ‘cost of credit’, but has no bearing on the ‘availability of credit’.

5. The sub-prime crisis is described more completely in the chapter on ‘credit risk.'

6. Meir Kohn, Financial Institutions and Markets,. (New Delhi: Tata McGraw-Hill), 808.

7. Travellers ‘cheques’ (also DDs and bankers’ cheques) are usually added to the definition of ‘money’ since they represent money already lying with banks pending payment.

8. Money not convertible into anything else—real money—is called ‘definitive money’. For example, you cannot take rupees to the central bank and demand payment in ‘real money’. In exchange, all you will receive is rupees for the same amount. A normal function of most central banks is provision of definitive money to the economy. Money of this type, which exists by an order of the government or ‘fiat’ alone, is called ‘fiat money’.

9. Based on RBI, 2000, ‘New Monetary and Liquidity Aggregates’, RBI Bulletin, November 16, 2000.

10. Based on guidelines contained in RBI, ‘Master Circular on CRR and SLR’, Septermber 18, 2009.

11. A good source for the basic concepts of repos is the RBI report on repurchase agreements that can be accessed at www.rbi.org.in

12. Source: www.federalreserve.gov, the website of the Federal Reserve Board, Washington.

13. A primary dealer is a bank or authorised securities dealer who deals with the central bank to actively participate in government securities trading and open market operations.

14. Bear Sterns was one of the largest global investment banks and securities trading and brokerage houses, before it collapsed in 2008. Badly hit by the sub-prime crisis, it was sold off to JP Morgan Chase, after a bid by the US government to avert the collapse.

15. Source: Bank of Canada Web site

16. Source: www.ecb.int

17. Belgium, Germany, Greece, Spain, France, Ireland, Italy, Cyprus, Luxembourg, Malta, Netherlands, Austria, Portugal, Slovenia and Finland.

18. Include banks and savings banks who take deposits from the public and create credit out of the repayable funds.

19. Source: RBI Master Circular “Cash Reserve ratio and Statutory Liquidity ratio”, dated 18 September 2009.