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imported>John Grout |
imported>Doug Williamson |
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| A concession given to a select number of financial institutions whereby their central bank agrees to provide them with funds if they should get into [[liquidity]] difficulties.
| | (MPS). |
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| The primary purpose of the activity by the central bank is stability of the financial system. Secondarily, the purpose is stability of the particular institution affected. | | The proportion of an increase in income which is saved, defined as 1 - MPC. |
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| | ''Where:'' |
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| | MPC = Marginal Propensity to Consume |
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| Central banks generally avoid risk taking behaviour. Accordingly, in principle, the central banks only lend against good security ([[collateral]]) and with a conservative [[haircut]]. In practice, liquidity shortage may force a bank to seek to dispose of assets, even at significant losses that erode its capital. Eventually the central bank may lend against less-good collateral and with less than its desired haircut on collateral valuation - until it won't, when the game is over and the story becomes one of [[resolution]].
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| == See also == | | == See also == |
| * [[Central bank]] | | * [[Marginal propensity to consume]] |
| | * [[MPS]] |
| | * [[Multiplier]] |
Revision as of 20:24, 5 May 2016
(MPS).
The proportion of an increase in income which is saved, defined as 1 - MPC.
Where:
MPC = Marginal Propensity to Consume
See also
