GROUP 5:

AQUINO, ZANDREA MAY P.

DEL PILAR, ANDRELENA C.
DEL ROSARIO, RIA MAE C.
NOPIA, LEANA GRACE T.
SUGALE, JANAH MAY S.
Monetary Policy and Central Banking

GUESS THE
PICTURE
W W W

INRCOKNNEANCTEDTE
 ANSWER

W
I N T E W
R C O N N E W
C T E D
 W

RSHEAEST
 ANSWER

R A W
T E S
W W

AEFNGLOANED
 ANSWER

W
E N G L W
A N D
 W

OSITDAEP
 ANSWER

D E P O W
S I T
 W

KCBNRA
 ANSWER

B A W
N K
GROUP 5:
AQUINO, ZANDREA MAY P.
DEL PILAR, ANDRELENA C.
DEL ROSARIO, RIA MAE C.
NOPIA, LEANA GRACE T.
SUGALE, JANAH MAY S.
LEARNING OUTCOME
01
02
DESCRIBE THE INTERBANK MARKET
03
04
ILLUSTRATE THE INTERBANK LENDING MARKET
05
06
EXPLAIN HOW TO SUPPLY MONEY IN THE INTERBANK MARKET
07
INTER-BANK
MARKET

The IBMs are where the settlement of

interbank claims take place and where
monetary policy begins.
INTER-BANK
MARKET
Bank-to-central bank interbank market

Central bank-to-bank interbank market

Bank-to-bank interbank market

BANK-TO-CENTRAL BANK
INTERBANK MARKET

BANK A

CENTRAL BANK
BANK B

BANK RESERVE
BANK C
CENTRAL BANK-TO-BANK
INTERBANK MARKET

BANK A

CENTRAL BANK
BANK B

BANK LOAN
BANK C
 BANK-TO-BANK
INTERBANK MARKET
BANK A

CENTRAL BANK

BANK D BANK B

BANK C
THE INTERBANK
LENDING MARKET BANK A

CENTRAL BANK
Bank Lends Bank Reserves to BANK B
BANK D
one another typically for a week
or less, but mostly overnight.
BANK C
Interbank rate

The interbank rate is determined

by the demand and supply for
bank reserves .
BANK A

CENTRAL BANK
BANK B

BANK C
Bank reserves
BANK A

CENTRAL BANK

BANK B

Interbank rate

BANK C
Bank reserves
BANK A

CENTRAL BANK

BANK B

Interbank rate

BANK C
Bank reserves
 LIBOR (London Interbank
Offered Rate)

LIBOR is the average interest rate at

which major global banks borrow from
one another.
 LIBOR is administered by the Intercontinental Exchange,
which asks major global banks how much they would charge
other banks for short-term loans.
 COMPARISON
PRIME LENDING RATE LIBOR

Set below the Average derived from the

inflationrate rates at which major
Fixed rate banks lend to each other
Used by consumers Floating rate
Used by banks
 BANK A

CENTRAL BANK

BANK D BANK B

BANK C
 STABLE CONDITION IN
FINANCIAL SYSTEM
Stable conditions in the financial system are accomplished

When there is a high degree of CONFIDENCE that

the financial intermediaries and markets are stable, i.e. are
able to meet obligations without disruption. This does not
mean that individual financial institutions cannot be allowed
to fail. The financial system is unstable only when systemic
failure is highly probable
 BANK A

CENTRAL BANK

BANK D BANK B

BANK C
 CENTRAL BANK'S ROLE
In order to keep the interbank rate
stable, the CB often supplies money
in the interbank market
 BANK A

CENTRAL BANK

BANK D BANK B

BANK C
HOW TO SUPPLY MONEY
Buy Assets
Non-recourse loan
Recourse loan
Lending money without collateral
 Borrowers Lenders
Keep the Keep the
Collateral Collateral

Amount of Loan - 90 Amount of Loan - 95

Non-recourse loan
Repayment 110 Repayment 110

Amount of Loan - 100 Amount of Loan - 105

Recourse loan
Repayment 110 Repayment 110
INTER-BANK
MARKET
Bank-to-central bank interbank market

Central bank-to-bank interbank market

Bank-to-bank interbank market

BANK-TO-CENTRAL BANK INTERBANK MARKET

an "administrative" market in which the flow is one-way: from the banks to the
central bank in the form of the cash reserve requirement.

CENTRAL BANK

BANK A

BANK RESERVE
CENTRAL BANK-TO-BANK INTERBANK MARKET

It represents loans from the central bank to the banks (also called borrowed
reserves - BR).

CENTRAL BANK

BANK A

BANK LOANS
 BANK-TO-BANK
INTERBANK MARKET
BANK A

CENTRAL BANK

BANK D BANK B

BANK C
BALANCE SHEET: CENTRAL BANK
BALANCE SHEET: BANKS
GROUP 5:
AQUINO, ZANDREA MAY P.
DEL PILAR, ANDRELENA C.
DEL ROSARIO, RIA MAE C.
NOPIA, LEANA GRACE T.
SUGALE, JANAH MAY S.