The Fed as Lender of Last Resort
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- Опубликовано: 10 сен 2024
- If you heard a rumor that your bank was insolvent (in other words, it had more liabilities than assets), what would you do?
A typical reaction is to panic. What if you can’t get your money out? Your next step would likely be to try and get all of your cash in hand.
The rumor could even be false, but if enough people responded as if it were true, it would still spell trouble. Even solvent banks can have illiquid assets. If the bank can’t pay out to its depositors, the panic can spread.
This is where the Federal Reserve System comes into play. The Federal Deposit Insurance Corporation (FDIC) insures deposit accounts. And, if the insurance isn’t enough or the financial institution isn’t covered, the Fed can act as the “lender of last resort” - it can loan enough money to a bank to cover customers who want their cash.
Why does this happen? Well, panics can be a threat to the entire banking system. If one financial institution falls, even if it is insolvent, it can have a domino effect.
If you think through very recent U.S. history, you’ll quickly come up with some examples of the Fed intervening. During the 2008 financial crisis, the Fed, along with U.S. Treasury and FDIC, stepped in to “bail out” insolvent U.S. financial institutions to minimize systemic risk.
But what happens when you know that the government will clean up the mess if you make risky investments? This is certainly a big problem facing the Fed. We’ll discuss the consequences in detail in this video.
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What a fantastic video! Very good succinct explanation of what can be seen as very complex.
Another great video! This channel really feels like a hidden gem - can't wait for the bitcoin episode. The implications of a global, decentralised money system on monetary policy and institutions will surely be a game changer.
Hazdude not gonna happen.
When government regulations try to supplant market forces, only then do you learn to appreciate the full extent of those market forces, and why government has so much trouble maintaining a proper balance.
You've forgotten to mention that the federal reserve is a privately owned corporation which has private shareholders with a yearly dividend of 6%. it is stated in the fed website.
thank mr bernke
1:21 - if there's ever a run on a bank, can I still transfer my money from this troubled bank to my other bank account in a different bank? Or is it usually too late even for online transfers? I mean, while other people are waiting in a queue to withdraw cash, I could transfer my money via online banking.... or maybe not? :)
I am afraid you will have to wait in the queue like everyone else :)
I love all these videos and they are so helpful. I like that they try to be fun. thanks guys
They could have very well bailed out the people as opposed to the banks AND none of the loss of 2008 is on the books, because we can absorb it 🤔
Wonderfully succinct explainer. I sincerely hope this comments section doesn't get hijacked by idiot conspiracy theorists who've spent far too much time watching dumb (and vaguely anti-semitic) RUclips videos.
^ Oh great, there's one now.
It will
ruclips.net/video/iiKr-i022mY/видео.html The Progressive Growth of the Money Supply Principle (year 2013) tells us the exact quantity of new money the economy needs to works correctly, driving us to the Wicksell interest rate or natural interest. This principle will force central banks to change monetary policy.
In NZ the reserve bank doesn't insure deposits at all. The banks know this and don't take on more risk than its worth. But I don't see how you can change such an ingrained culture in the US. And changing back to uninsured will scare many people.
Increase the amounts of reserves needed within a bank. Simple. It will lead to less loans and contraction of economy though.
So it can be done when there's chances of high inflation
@@gabbar51ngh I agree and I think that's what the US did after 2008. Banks now are keeping deposits well above the minimum, because 2008 was a huge wake up call. But there is still a tradeoff between more bank regulation, or being exposed to moral hazard when the government provides these guarantees/insurance.
You could just not guarantee anything but that might be a useless bluff, because the banks know the government won't let everything come crashing down.
Amazingly well made video about something really important.
Video topic: How did the American economy experience such break-neck, rapid advancements in the 1800's, before and after the Civil War, long before the Fed was there to serve as a safety net? In general, how do rates of innovation and elimination of poverty compare before and after the Fed?
More room to grow, period. We were behind Europe industrially in the early 1800's and caught up during that decade. There were several panics and recessions in the late 1800's as well so it wasnt steady growth, just rapid. See their vid on the 20th century rise of China
@@christianschwalbach7561 You caught up because of ww2. It's that simple...
Great content
You are the best
Man, the fed has it rough these days
Please create a video about what Economists think of net neutrality and utility monopolies in general. It seems bad on the surface but I would like to hear about it from an expert.
If bailouts were just the fed or the gov investing in failing banks or companies, ie taking on ownership (and dividends, board seats etc), could that not serve as an incentive not to take too high risks, since the investors would risk loosing profits and shares?
Amazing video!
What would be the benefits and costs of using the Fed as a lender of last resort?
I think I heard that the purpose of the Fed is to protect "the system." Not taxpayers, entrepreneurs, the free market, or you. The System.
End the FED
Israel Finardi most definitely!
YEAH SCREW STABILITY. WHO NEEDS IT?
The economy fixes itself by suply and demand. Its natural order.
When the government or the central banksters interveins trying to help private banks and corporations with fake money, the economy do not have a genuine recuperation.
Fractional Reserve System is the root of all problems that we see in modern societies. All crysis is a derivative problem caused by the FED.
All the loans that the banks gives to the people, have to be picked in a form that the owner of the money knows the bank is giving a loan.
If this not happens, crysis will hapen .
Bitcoin will fuck central banksters and the tradittional corporate system.
A deflationary coin is better than a inflationary coin.
Great video
Great vid
what is shadow bank?
Vaibhav,
Check out this video where Tyler covers that term: ruclips.net/video/dI6HNi5I8d4/видео.htmlm45s
Roman
great thanks.
"End the FED" is a Meme. Not an argument. Ignore it.
ANigerianPrince is a Meme. Not a person. Ignore it.
Thank you
? ^^2
"Insolvent Bank = Liabilities > Assets" @1:12
@One
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Twelve ~
An insolvent institution is one with more liabilities than assets @1: 13,...