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The "liquidity requirements" you refer to are the fraction in "fractional-reserve." If I deposit $1, and then the bank's capital requirements are 75%, and they
by sdhgaiojfsa 8y ago
The "liquidity requirements" you refer to are the fraction in "fractional-reserve." If I deposit $1, and then the bank's capital requirements are 75%, and they lend out $0.75, the total amount of money is now $1.75. This is what people are referring to when they say banks create money.
- spiralx 8y agoBanks "create" money by making loans, but those loans aren't made from other deposits. A bank with a 10% requirement that has $100,000 in reserves can loan $1,000,000 to somebody even though they don't have that much deposited there.