Banks and credit

Objective: Explain deposit and loan, distinguish their meanings, and apply them to a described case.

Deposit: A deposit is a bank liability representing money owed to a depositor under account terms. Loan: A loan provides funds with a contractual repayment obligation. Monetary institutions connect payment, saving, borrowing, and risk. A bank's deposits, liquid assets, and capital are different balance-sheet concepts. Policy influences financial conditions through several channels and cannot guarantee a precise response from every borrower or firm. Expectations and timing matter. An introductory model is useful for tracing a mechanism but should not be confused with a complete description of modern monetary operations. Application: An account holder has a claim on a bank balance. This most directly illustrates deposit. A borrower agrees to repay principal and interest. This most directly illustrates loan.

Objective: Explain interest and credit risk, distinguish their meanings, and apply them to a described case.

Interest: Interest is payment associated with borrowing or lending over time. Credit risk: Credit risk is the risk a borrower will fail to meet obligations. Monetary institutions connect payment, saving, borrowing, and risk. A bank's deposits, liquid assets, and capital are different balance-sheet concepts. Policy influences financial conditions through several channels and cannot guarantee a precise response from every borrower or firm. Expectations and timing matter. An introductory model is useful for tracing a mechanism but should not be confused with a complete description of modern monetary operations. Application: A borrower pays for using funds during a period. This most directly illustrates interest. A lender evaluates the likelihood of missed repayments. This most directly illustrates credit risk.

Objective: Explain bank liquidity and bank capital, distinguish their meanings, and apply them to a described case.

Bank liquidity: Bank liquidity concerns capacity to meet payment and withdrawal needs. Bank capital: Bank capital is loss-absorbing funding distinct from deposits and reserves. Monetary institutions connect payment, saving, borrowing, and risk. A bank's deposits, liquid assets, and capital are different balance-sheet concepts. Policy influences financial conditions through several channels and cannot guarantee a precise response from every borrower or firm. Expectations and timing matter. An introductory model is useful for tracing a mechanism but should not be confused with a complete description of modern monetary operations. Application: A bank maintains assets usable for near-term withdrawals. This most directly illustrates bank liquidity. A bank's owners bear losses through its equity. This most directly illustrates bank capital.