Credit Markets and Financial Intermediation

Vocabulary terms and definitions related to financial systems, bank operations, and the 2008 financial crisis based on the lecture notes.

Financial Intermediation

One of the four roles of the financial system that connects those who supply funds (firms, households, and governments) with those who demand funds.

Maturity Transformation

The process by which banks transform short-maturity liabilities, like deposits, into long-term investments, like business and real estate loans.

Maturity

The time until a debt must be repaid; for example, demand deposits have a $0$-year maturity while loans can range from several years to decades.

Stockholders’ equity

The value defined by the identity: ext{Total assets} - ext{Total liabilities} umpeq ext{Stockholders’ equity}.

Insolvent

A financial state where a bank's total assets are valued at less than its total liabilities ( ext{assets} < ext{liabilities}).

Bank run

A situation where a substantial number of depositors withdraw their deposits at the same time, often leading to "fire sales" of illiquid assets.

SIFIs

Systemically important financial institutions that are considered "too big to fail" and are required to pass annual stress tests.