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on 12-Dec-2022 (Mon)

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#economics #money
A financial asset is unlike a real asset (a building, a car, a television, a painting) because there can only be a financial asset (notes and coins in your pocket, cash in the bank, corporate or government bonds) if there is an equal and opposite financial liability. The two always net off to nil.
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Mark Wadsworth: Banking made easy
values fall (because of reckless loans on land and buildings which fall in value) then the value of the liabilities fall as well (i.e. if you own shares or bonds in a bank which is making big losses, the value of your shares or bonds fall).b) <span>A financial asset is unlike a real asset (a building, a car, a television, a painting) because there can only be a financial asset (notes and coins in your pocket, cash in the bank, corporate or government bonds) if there is an equal and opposite financial liability. The two always net off to nil. So, for example, if you have a mortgage on your house, you have a liability but the bank records it as an asset.2. The traditional books explain how banks started off using 'fractional r




#economics #money
share capital is a non-repayable liability or source of finance
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The modern view of banking regulation (i.e. Basel rules), we look at the liabilities side, and say that share capital (a non-repayable liability or source of finance) should be at least a tenth* of total assets; so if the value of assets falls by a tenth or less, there are still enough assets left to repay depositors and bondholders.</bo

Original toplevel document

Mark Wadsworth: Banking made easy
o make a withdrawal.3. So in the old fashioned view of banking regulation (or self-regulation), we look at the assets side: as long as the bank has a tenth* of its assets in liquid form (i.e. gold coins in the safe), it will probably do OK.4. <span>The modern view of banking regulation (i.e. Basel rules), we look at the liabilities side, and say that share capital (a non-repayable liability or source of finance) should be at least a tenth* of total assets; so if the value of assets falls by a tenth or less, there are still enough assets left to repay depositors and bondholders.5. Quite how the myth that a bank can lend out ten times as much as it takes in deposits (or bonds) arose, I have no idea, it is quite simply not true. The Basel one-tenth* limit is impo