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If only it were that simple. Turns out that, rather than being constrained by the deposits/assets they have on hand (FRB doctrine), banks will create the loans
by pjmorris 10y ago
If only it were that simple. Turns out that, rather than being constrained by the deposits/assets they have on hand (FRB doctrine), banks will create the loans they believe they can make, then go settle up with the central bank/regulators. See, for example, (unorthodox) economist Steve Keen [0][1] on this.
[0] http://www.forbes.com/sites/stevekeen/2015/02/28/what-is-money-and-how-is-it-created/#24561cde56a3 http://www.forbes.com/sites/stevekeen/2015/02/28/what-is-mon...
[1] https://en.wikipedia.org/wiki/Steve_Keen https://en.wikipedia.org/wiki/Steve_Keen
- lsd5you 10y agoYeah, that was my greatest take away from what I've read from him. Talk about the tail wagging the dog. The restrictions in this light almost do more harm than good since it exonerates the banks (or rather the system) and every time we have a crisis (after people have been making the big bucks for years) we treat it as mysterious and unrelated to the profits made in the 'good' times.
- maxerickson 10y agoOne of the primary responses to the 2008 crisis has been to change the regulations around capital requirements for banks and other financial institutions. https://en.wikipedia.org/wiki/Basel_III https://en.wikipedia.org/wiki/Basel_III Note that even though the introduction calls it a voluntary framework, the US and EU have implemented much of it in their regulatory systems.