Week 4 — Lectures 6 & 7, Reading 3

We're discussing the following for week 4:

Lecture 6: Federal Funds, Final Settlement

Lecture Notes
This lecture describes a stylized version of the US payment system, and how the Fed Funds market (interbank lending) used to allocate reserves among the banks before 2008. Lots of great balance-sheet practice for understanding how a credit-based payment system can work.

Lecture 7: Repos, Postponing Settlement

Lecture Notes
A repurchase agreement (repo or RP) is a form of short-term market-based collateralized credit that allows non-banks to buy and sell liquidity, and operate like a payments system.

Reading 3: The Check System, a chapter from Chapters on the Theory and History of Banking by Charles Dunbar

Study Questions
This is a description of the checking system in the US in the late 19th century. We still had to make the payments system go even before we had the Fed.

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