Question

go to the st. louis federal reserve fred database, and find data on assets less liabilities, i.e. bank capital (ralacbm027sbog), and total assets of commercial banks(tlaacbm027sbog). starting in january 1973 until december 2021, using the fred graphing tool, calculate the bank leverage ratio and create a line graph of the leverage ratio over this sample (include the graph you created with your submission). given the path of bank leverage over time, what can you conclude about moral hazard in the banking system over the time period considered?

Answer 1

The moral hazard in the banking system over the period of time are the bank leverage will increase and liabilities will also increase.

What is the history of banking?

The first prototype banks in the history of banking were the merchants of the world, who lent grain to farmers and traders who transported products between towns. In Assyria, India, and Sumeria, this occurred circa 2000 BCE. Later, during the time of the Roman Empire and in ancient Greece, lenders headquartered in temples provided loans while also taking deposits and handling currency exchange. Evidence of money lending can also be seen in the archaeology of ancient China and India. The wealthy cities of Florence, Venice, and Genoa are among those where many academics locate the historical origins of the contemporary banking system. The Bardi and Peruzzi Families controlled the banking industry in Florence in the fourteenth century, opening branches across much of Europe.

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