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Study Notes

Banking - Key Concepts Explained (Financial Economics)

AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 21 Mar 2021

Here is a short selection of key concepts used in the study of the economics of commercial banks and credit creation.

Banking credit

  • An arrangement with a bank for a loan, or bank lending in general


  • A business that makes its profit by paying interest to people who keep money there and charging a higher rate of interest to borrowers who borrow money from the bank

Bank capital

  • Bank capital is the value of the bank's assets minus its liabilities, or debts

Bank reserves

  • Money and liquid assets (such as securities that can be sold quickly) held by banks in order to meet withdrawals by customers

Banking system

  • The way banks work together to make payments, make money available

Co-operative bank

  • A bank that lends money, collected from its members, at low rates of interest

Internet banking

  • The services provided by banks that only exist on the Internet

Shadow banking

  • Non-deposit taking financial intermediaries including investment banks, hedge funds

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