In practice, the reserve ratio has continued to decline, and in fact, via the fraudulent FDIC underwriting practices massive moral hazard has been created in th

In practice, the reserve ratio has continued to decline, and in fact, via the fraudulent FDIC underwriting practices massive moral hazard has been created in the banking sector. In short, banks can leverage as much as they want, and the FDIC will cover their butts if they fail, but the FDIC does not charge adequate premiums based on risk. Further the federal reserve isn't really a "lender of last resort" In fact, the term "lender of last resort" is inaccurate, as the federal reserve offers rates on money that are lower than the market. They are doing this now as a response to a crisis that was caused by them doing it in the past (as I pointed out elsewhere.) A lender of "last resort" would be one you could always go to, but who was expensive and therefore you were incentivized - "first resort" - to go to the market.