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Banks have always loaned out deposits, that's just what they do elsewise they'd be money warehousing operations and there'd be no fractional-reserve banking car

Banks have always loaned out deposits, that's just what they do elsewise they'd be money warehousing operations and there'd be no fractional-reserve banking cartel.

klodolph 8y ago
I think there's a bit of a subtlety in the parent comment that you may be missing, because the "banks don't loan out deposits" is a reference to fractional-reserve banking.
- UncleEntity 8y ago
  That's the whole basis of fractional-reserve banking, banks loan out deposits while keeping a small percentage on hand (last I cared to check it was 10%) to meet their reserve requirements. Without deposits banks couldn't loan out anything since they couldn't meet their reserve requirements and they'd basically be insolvent. So, true, banks don't loan out 100% of deposits but they certainly do loan out deposits.
  - didgeoridoo 8y ago
    Edit: my comment was misleading and confusing and I’m too tired to fix it right now so into the bin it goes :)
    - klodolph 8y ago
      No, that's not correct at all. It does mean that the back loans out an amount of money equal to 90% of its deposits. In some sense it's not the "same" money because the deposit amount is counted as money in its own right... both the amount of money in the loan and the amount of money in the deposit is counted as "money supply". The 1000% figure comes from the fact that the money that the bank loans out is in turn held in another deposit account somewhere, and so it has a cascading effect... I deposit $100, my bank loans out $90 to person B, that money gets saved in a bank which can then loan out $81, then $72.9 gets created somewhere else. 1000% is just the limit of the sum 1 + 0.9 + 0.81 + ...
      - Dylan16807 8y ago
        And to put that all together, it means the bank is responsible for $1000 in deposits, has $900 owed to it in loans, and has $100 of cash in the vault.
    - Dylan16807 8y ago
      > Edit: replace “deposits” with “reserves”, which is all that matters. Sure. So we have a 10% reserve requirement. Logically that means we have 90% loans, and 90% is nine times as much as 10%. So loans are 900% as big as reserves. Is that supposed to be surprising?
- mempko 8y ago
  Except that fractional reserve banking is not a real thing though. Most central banks have zero reserve requirements. Even when there are requirements, they are for only certain types of loans, and often those reserves need to be met way in the future.
Finnucane 8y ago
Yes, banks loan out deposits, but they don’t need deposits to make loans.
ddingus 8y ago
Money is created, just not the entire loan.
- AnthonyMouse 8y ago
  The amount of money created is the entire loan amount. The full deposit still exists in addition to the loan. What the reserve ratio does is create an upper bound on how much new money the bank can create (before it needs more reserves).
  - ddingus 8y ago
    I didn't know that. Do you have a reference? (I believe you, just want to learn more.) NVM, I was confused over another statistic. ~97 percent of all new money is created in local banks, the government only creating ~3 percent.

Banks have always loaned out deposits, that's just what they do elsewise they'd be money warehousing operations and there'd be no fractional-reserve banking cartel.

klodolph 8y ago

I think there's a bit of a subtlety in the parent comment that you may be missing, because the "banks don't loan out deposits" is a reference to fractional-reserve banking.

UncleEntity 8y ago
That's the whole basis of fractional-reserve banking, banks loan out deposits while keeping a small percentage on hand (last I cared to check it was 10%) to meet their reserve requirements. Without deposits banks couldn't loan out anything since they couldn't meet their reserve requirements and they'd basically be insolvent. So, true, banks don't loan out 100% of deposits but they certainly do loan out deposits.
- didgeoridoo 8y ago
  Edit: my comment was misleading and confusing and I’m too tired to fix it right now so into the bin it goes :)
  - klodolph 8y ago
    No, that's not correct at all. It does mean that the back loans out an amount of money equal to 90% of its deposits. In some sense it's not the "same" money because the deposit amount is counted as money in its own right... both the amount of money in the loan and the amount of money in the deposit is counted as "money supply". The 1000% figure comes from the fact that the money that the bank loans out is in turn held in another deposit account somewhere, and so it has a cascading effect... I deposit $100, my bank loans out $90 to person B, that money gets saved in a bank which can then loan out $81, then $72.9 gets created somewhere else. 1000% is just the limit of the sum 1 + 0.9 + 0.81 + ...
    - Dylan16807 8y ago
      And to put that all together, it means the bank is responsible for $1000 in deposits, has $900 owed to it in loans, and has $100 of cash in the vault.
  - Dylan16807 8y ago
    > Edit: replace “deposits” with “reserves”, which is all that matters. Sure. So we have a 10% reserve requirement. Logically that means we have 90% loans, and 90% is nine times as much as 10%. So loans are 900% as big as reserves. Is that supposed to be surprising?
mempko 8y ago
Except that fractional reserve banking is not a real thing though. Most central banks have zero reserve requirements. Even when there are requirements, they are for only certain types of loans, and often those reserves need to be met way in the future.

Finnucane 8y ago

Yes, banks loan out deposits, but they don’t need deposits to make loans.

ddingus 8y ago

Money is created, just not the entire loan.

AnthonyMouse 8y ago
The amount of money created is the entire loan amount. The full deposit still exists in addition to the loan. What the reserve ratio does is create an upper bound on how much new money the bank can create (before it needs more reserves).
- ddingus 8y ago
  I didn't know that. Do you have a reference? (I believe you, just want to learn more.) NVM, I was confused over another statistic. ~97 percent of all new money is created in local banks, the government only creating ~3 percent.