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Bank balance sheets

Bank balance sheets. ASSETS. LIABILITIES. MORTGAGES. DEPOSITS. CREDIT TO BUSINESS. SHAREHOLDER. RESERVES. Bankrupt bank. ASSETS. LIABILITIES. MORTGAGES. CREDIT TO BUSINESS. RESERVES. DEPOSITS. Liquidity problems. LIABILITIES:

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Bank balance sheets

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  1. Bank balance sheets ASSETS LIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS SHAREHOLDER RESERVES

  2. Bankrupt bank ASSETS LIABILITIES MORTGAGES CREDIT TO BUSINESS RESERVES DEPOSITS

  3. Liquidity problems • LIABILITIES: -- checking and savings accounts that can be withdrawn quickly (on short notice) • ASSETS -- long run; bank loans and business credits will be returned slowly over times

  4. Bank with liquidity problems ASSETS LIABILITIES MORTGAGES exceptional withdrawals of deposits CREDIT TO BUSINESS DEPOSITS SHAREHOLDER RESERVES

  5. Original Paulson Plan (USA) ASSETS LIABILITIES MORTGAGES buy bad mortgages DEPOSITS CREDIT TO BUSINESS SHAREHOLDER RESERVES

  6. Original Paulson Plan (USA) ASSETS LIABILITIES MORTGAGES CREDIT TO BUSINESS DEPOSITS SHAREHOLDER RESERVES

  7. Spanish Plan ASSETS LIABILITIES MORTGAGES buy good mortgages DEPOSITS CREDIT TO BUSINESS SHAREHOLDER RESERVES

  8. Spanish Plan ASSETS LIABILITIES MORTGAGES CREDIT TO BUSINESS DEPOSITS SHAREHOLDER RESERVES

  9. British Plan ASSETS LIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS SHAREHOLDER RESERVES GOVERNMENT BECOMES A SHAREHOLDER

  10. British Plan ASSETS LIABILITIES MORTGAGES DEPOSITS CREDIT TO BUSINESS SHAREHOLDER RESERVES GOVERNMENT BECOMES A SHAREHOLDER

  11. All plans: government provides “liquidity” ASSETS LIABILITIES MORTGAGES exceptional withdrawals of deposits CREDIT TO BUSINESS DEPOSITS SHAREHOLDER RESERVES

  12. Government ownwership of banks? • Will it improve the situation? • Yes, if the government is better at avoiding high risks. That is, if government is better risk manager. • GERMANY INTERESTING CASE: -- big private banks -- big banks with substantial public ownwership (federal, state, municipal)

  13. German banks with problems • Deutsche Bank • Hypo Real Estate • West LB • IKB Deutsche Industriebank • Bayern LB • HSH Nordbank • Sachsen LB

  14. Fannie Mae and Freddie MAc • The 2 big US mortgage intermediaries that went bankrupt and were “nationalized” a few weeks ago • These were “government sponsored enterprises” -- they were perceived as more secure because of implicit government backing -- they were under political pressure: several indication of political pressures to buy more mortgages to “high-risk” households to make housing more affordable for low income families

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