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They're not creating money from nothing, hence fractional. And to the extent they don't have anything at stake, it's because they get bailed out, which is a dif
by mseebach 8y ago
They're not creating money from nothing, hence fractional. And to the extent they don't have anything at stake, it's because they get bailed out, which is a different concern altogether.
- alasdair_ 8y ago> And to the extent they don't have anything at stake, it's because they get bailed out, which is a different concern altogether. The two things are directly linked. If people want to gamble on a bank deposit like any other investment, that's fine. The less sound banks will need to offer higher returns on money than the more sound banks in order to compete. The problem lies when the government (implicitly or explicitly) backs the deposits - without this backing, people wouldn't care nearly as much about the issue.
- spiralx 8y ago> They're not creating money from nothing, hence fractional. No, banks do create money through loans - lending occurs first, then reserve requirements are met afterwards. See for instance this research paper from Standard & Poor's: Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_Me_8_14_13.pdf https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_... The idea of "fractional-reserve banking" isn't accurate when it comes to modern banking.