fed in action

Question 1

conventional polict

Answer 1

influence AD by lowering/raising short term rates via OMO (pre 2008) or IOR (post 2008)

Question 2

unconventional policy

Answer 2

seeks to influence AD by lowering/raising long term rates via QE, forward guidance

Question 3

landing is

Answer 3

bringing inflation back down

Question 4

soft landing

Answer 4

inflation stays down

Question 5

hard landing

Answer 5

inflation goes back up after being brought down

Question 6

refinancing mortagge

Answer 6

getting a new lower rate
-use money from new loan to pau old one, its better because new rate is lower

Question 7

each interest rate decision by the FOMC is now accompnaied by what

Answer 7

a correspondong piece of forward guidnace

Question 8

forward guidanc: taxiing january- december 2021

Answer 8

change is part of forward guidance piece. observation that inflation is about its target

Question 9

december 2021 forward guidance taxiing is under the impression

Answer 9

that inflation is not gonna be a big problem

Question 10

forward guidance takeoff january 2022

Answer 10

see that they are expecting to raise FFR soon

Question 11

forward guidnace liftoff march 2022-may 2022

Answer 11

rasied rates and then they said they expected to keep raising rates.
-admitted they slept on inflation and have to raise it more than they would like

Question 12

quantitative tightening

Answer 12

reducing large asset scale through sale or hold it till it falls off/loses value

Question 13

what do QE and quantitative tightening help

Answer 13

help reduce gap between short and long term

Question 14

cost of forward guidnace

Answer 14

it constrains the fed. what if it changes its mind. Lowk messes us up, so we get mad at the fed and trust them less

Question 15

key channel through which fed can reign in inflation is by

Answer 15

tempering asset prices

Question 16

why was there no such decline in 2004/2005

Answer 16

FFR wwas raised more slely and said rasies had hardly any impact on long term rates

Question 17

balance sheet is liquid when

Answer 17

its money exceeds the value of its short term liabilities

Question 18

when is a balace sheet solvent

Answer 18

if value of its assets exceed the value of its debt

Question 19

is liquid short or long term, what about solvency

Answer 19

liquidity is short term measure of quality and solvency is long term

Question 20

why do you need a liquid balance sheey

Answer 20

you need money to pay for debt, if not you go bankrupt

Question 21

true or false every modern bank is illiquid

Answer 21

dont have money to pay deposits. duration of deposits is whenever you want

Question 22

what do you use to determine if a bank is good or not

Answer 22

solvency

Question 23

main way banks are financed is

Answer 23

deposist

Question 24

why does fed lend to banks

Answer 24

for collateral

Question 25

lender of last resort

Answer 25

protect solvent banks from going bankrupt

Question 26

congress established the fed as a

Answer 26

lender of last resort

Question 27

sillicon vallet bank

Answer 27

-fed raised interest rates
-market value of SVB assets falls whereas market value debt is unchanged

Question 28

were SVB assets long or short term

Answer 28

assets were mostly long term, whereas most of its debt is short term

Question 29

duration gap

Answer 29

differebc =e between average duration of assets vs average duration of liabilities

Question 30

silicon valleys banks problem was that

Answer 30

they did not have enough money to pay deposits

Question 31

second act for SVB

Answer 31

they planned a capital raise to strengthen liquidity + solvency
-issue and sell more stock to inc capital (no one liked this)
-within a day 20% of all deposits were withdrawn.

Question 32

SVB third act

Answer 32

they end day with -1b in cash balances
-this is possible because they can have (-) reserve balance (day lighht over drafts)

Question 33

why are withdrawls so much easier today

Answer 33

because it is online. info spread faster (twitter) then can withdraw money on the pheon

Question 34

why is FDIC 250k deposit insurance insufficient to prevent runs

Answer 34

because evideintly some firms hoard hundred of millions in deposits (ie firms)

Question 35

fed needs to be aware of

Answer 35

banks assets

Question 36

what is an essential pillar of a smooth operating economy

Answer 36

commerical banking

Question 37

parts of dodd frank act

Answer 37

1) liquidits regulation
2) capital regulation
3)volcker rule
+ deposit insurance

Question 38

in response to the 2008 financial crisis congress put in place what

Answer 38

dodd frank act

Question 39

liquidit regulation

Answer 39

increased liquidity requirements on asset side

Question 40

capital regulation

Answer 40

increased capital requirements on the liability side

Question 41

volcker rule

Answer 41

banks may no longer buy risjt assets on their own behalf

Question 42

with dodd frank act depoit insreuance increased from 100k to

Answer 42

250k