Chapter 14: Money Creation

1. Chapter 14: Money Creation Alomar_111_20

2. 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_20

3. 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_20

4. 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_20

5. Functions of commercial banks • Open accounts (checkable, saving, time…) • Providing loans (different dimensions…) • Services to businesses • Other services… Alomar_111_20

6. 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_20

7. 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 Alomar_111_20