This will ensure sufficient amount at the disposal of the bank to cater to the withdrawals by the depositors on demand. So with as fresh depoist of Rs 100, the bank keeps Rs8 and lends Rs. 90 to potential borrowers by creating fresh deposit of Rs 90. But his cash at the beginning was increased by Rs.

So he lends further to fresh borroewers till his excess reserves goes down to zero. This happens when he had extended loan equivalnt to Rs 900. WITH A HIGHE crr, THE BANKS MONEY MULTIPLIER GOES DOWN.

THE BANKS ABILITY TO LEND GOES DOWN. HIS MERANS LOWER SUPPLY OF MONEY. With lower supply of money, fewer money will be chasing to buy goods and services, This will mean lower inflation. When banks lend money to people, new money is created. Rise in CRR reduces the ability to lend amd hence the total money created from the deposits. Lower money supply means lower demand for goods and services and therefore lower price inflation. Lower money supply and bank credit also means the banks charge higher interest on loans. The demand for loans goes down. So, first you reduce rate of growth of money supply. That raises interest rates which in turn reduces the demand for money. Thus liquidity in the syastem reduces,.

This helps curb further rise in prices. They are eligible to hold deposits in and borrow from Federal Reserve banks and are subject to the Feds reserve requirements and other regulations. Banks are required to hold reserves at least equal to prescribed percentages of their checkable deposits.

Compliance with the requirements is regularly tested, every two weeks for banks accounting for the bulk of deposits. Reserve tests are the fulcrum of monetary policy. When the Fed buys securities from banks or their depositors with base money, banks acquire reserve balances.

Likewise the Fed extinguishes reserve balances by selling Treasury securities. Interest rates on these loans are quoted continuously. Banks can also borrow from the Federal Reserve banks themselves, at their announced discount rates, in practice the same at all twelve banks. The setting of the discount rate is another instrument of central bank policy. Fed generally keeps the discount rate close to the federal funds market rate. However, announcing a new discount rate is often a convenient way to send a message to the money markets.

An institution that holds reserves in excess of the required amount is said to hold excess reserves. Reserve requirements affect the potential of the banking system to create transaction deposits. 10 cash deposit within the bank. Thus, higher reserve requirements should result in reduced creation of transaction deposits. Reserve requirements apply only to transaction accounts, which are components of M1, a narrowly defined measure of money.

CDs, have no reserve requirements and therefore can expand without regard to reserve levels.

Consequently, reserve requirements currently play a relatively limited role in money creation in the United States. The hike will take effect in two installments of a quarter of a percent each, from April 14 and April 18, an RBI statement said Friday. The spike in inflation has triggered concerns that the economy might be overheating and could be headed for a hard landing unless inflation is contained. The hike in the repurchase rate is the sixth since January 2006.

The successive rate hikes and monetary tightening will likely slow economic growth in the coming months. Earlier this week, the Asian Development Bank said it expects growth of Indias economy to slow to 8 percent in the next fiscal year starting in April. RBI is expected to spark another round of increase in mortgage and other lending rates by commercial banks, which, in turn, will slow credit growth and dampen investment. So lets talk about what gets people promoted and what gets them fired. On the way up the ladder.

Ive been a manager and never tolerated that but many do. Doing their job Ok, I know you get the doing something legal. Kenneth Lay broke the law and Enron went with him.

Fraud, Accounting irregularities, living to excess on the companys dime all can you. Often, this is a major character flaw in the person and truly comes out when they are in the top job. And more often than you think. Lets take the current situation with the big banks and the sub prime mortage problem. The CEO has a very delicate balance between the long term strategy, quarterly performance, customer satisfaction employee care, and shareholder value. By doing this rather sophisticated strategy, they underwrote higher principal loans with higher interest rates.

More satisfied customers, big profits, and better shareholder returns. That resulted in stock prices going up which meant more value for employees, who typicall all have stock options or employee stock purchase plans, and very very happy investors. Then the bottom fell out. Oil prices shoot up, the people who were over leveraged and the interest only or very high mortgages finally bit them. The customers were in over their heads. So, many began to walk away from their loans leaving the bank to deal with it.

When profits go down, so does earnings per share. When earnings per share goes down, the stock dies. Institutional investors get pissed off. If they arent careful, confidence will go way down and people will dump the stock leaving the company without a mechanism for ongoing investment to drive growth. Chairman and some of the board memebers.

Now, this is not unkown in the corporate world which is why CEOs have very strong employment agreements.

The CEO didnt really create the problem, but the balance they created was too risky and, as a result, the performance suffered. Dont feel too bad for them tho.

There are only a handful of people in the world who have the experience and contacts needed to run big banks, or retail companies, or oil companies, etc. 120 hour weeks it takes to do the job. Hope that sheds some light on things. When the housing market went south and the mortgage rates climbed, many homeowneres could not pay the new adjustable mortgage built into the mortgage. As people began filing for bankruptcy, the holder of the mortgages and other falsly evaluated loans were filed, Bear Stearns had no cash coming into the company. Everybody thought for years, that property can only go up in middle class neighbors. This time it didnt happen. The loans Bear Stearns offered mortgage seekers were based upon future projections of home evaluation and not current evaluation.

JP Morgan Chase to keep Bear Stears afloat by purchasing its stock and taking over some of Bear Stearns indebtness. US1 million of their own money.

When the market moved against them, there was no padding for the financiers that had lent them the money.