an asset that can be used for payments or, quickly and without loss of value, be converted into an asset that can be used for payments.

a situation that exists when many banks are insolvent; i.e., have liabilities greater in value than assets.

a widely accepted means of payment.

the risk that the failure of one financial institution can bring down other institutions as well.

a lender that loans money to banks and other financial institutions when no one else will, often a central bank or a country’s Treasury or Finance department.

situation that occurs when the Fed buys longer-term government bonds or other securities.

the buying and selling of government bonds by the Fed.

a system in which banks hold only a portion of deposits in reserve, lending the rest.

is when the Fed sells longer-term government bonds or other securities.

the interest rate banks pay when they borrow directly from the Fed at the discount window.

the amount the money supply expands with each dollar increase in reserves; MM = 1/RR where RR is the reserve ratio.

the ratio of reserves to deposits.

the overnight lending rate from one major bank to another.

a bank/firm whose liabilities are greater in value than its assets.

a situation that occurs when banks do not have enough liquid assets to meet their liability demands.

the idea that people who are insulated from risk will tend to take on more risk; in macroeconomics, occurs when banks and other financial institutions take on too much risk, expecting that the Fed and regulators will later bail them out.

a bank whose short-term liabilities are greater than its short-term assets but overall has assets that are greater than its liabilities.