Intro lecture - Refresher
September 4, 2022 8:39 PM
Dictionary: BS=Balance Sheets
• A refresher chapter could be "Howells & Bain", chapter 1
• Some of the pre-required knowledge
○ Intermediate macro economics
○ Basic banking
○ Accounting
○ Econometrics
▪ OLS
▪ Fixed effect models
▪ Limited dependent variables
• Role of a domestic financial sector:
• The real economy generates deficit and surplus sectors (ultimate lenders and
borrowers)
• Economy needs credit for investment and working capital, banks provide this
• The economy needs a paymlent system (=liquidity) and a store of welth
• Finance includes both ultimate and proximate sources of development (Explanatory
Growth Framework),
• Why does production and trade leads to financing needs?
• Liquidity creation is one of the key functions of the banking system
• IE: my promise of paying back a loan turned into a liquid loan
• There's no financial system without surplus/deficit units
• Earning and spending are net flows
• Surplus units net lend (save), deficit units net borrow
• Saving is not finance (=gross asset/liability changes)
• i.e.: borrowing to invest in shares is not net borrowing
• Saving does not equal real invesmtent
○ (Y-C)-I=NAFA
•
• Saving is a real concept and means income - expenditures (=Y-C)
• Finance is a financial concept and means total assets or liabilities (each side of the BS)
• Real capital (i.e.: a machine) is not financial capital (i.e.: a financial asset)
• Financial capital (a stock) is not credit (a flow)
Summary:
Banking Page 1
September 4, 2022 8:39 PM
Dictionary: BS=Balance Sheets
• A refresher chapter could be "Howells & Bain", chapter 1
• Some of the pre-required knowledge
○ Intermediate macro economics
○ Basic banking
○ Accounting
○ Econometrics
▪ OLS
▪ Fixed effect models
▪ Limited dependent variables
• Role of a domestic financial sector:
• The real economy generates deficit and surplus sectors (ultimate lenders and
borrowers)
• Economy needs credit for investment and working capital, banks provide this
• The economy needs a paymlent system (=liquidity) and a store of welth
• Finance includes both ultimate and proximate sources of development (Explanatory
Growth Framework),
• Why does production and trade leads to financing needs?
• Liquidity creation is one of the key functions of the banking system
• IE: my promise of paying back a loan turned into a liquid loan
• There's no financial system without surplus/deficit units
• Earning and spending are net flows
• Surplus units net lend (save), deficit units net borrow
• Saving is not finance (=gross asset/liability changes)
• i.e.: borrowing to invest in shares is not net borrowing
• Saving does not equal real invesmtent
○ (Y-C)-I=NAFA
•
• Saving is a real concept and means income - expenditures (=Y-C)
• Finance is a financial concept and means total assets or liabilities (each side of the BS)
• Real capital (i.e.: a machine) is not financial capital (i.e.: a financial asset)
• Financial capital (a stock) is not credit (a flow)
Summary:
Banking Page 1
