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> Modern banks have actually never operated under the "fractional reserve" model as described in economics textbooks How do they operate, if not under the frac
by tcgv 8y ago
> Modern banks have actually never operated under the "fractional reserve" model as described in economics textbooks
How do they operate, if not under the fractional reserve model?
- stephen_g 8y agoThe “fractional reserve” model implies incorrect ideas of how banks work - either as intermediaries between depositors and borrowers, or implying the “money multiplier” model of credit creation. Those are not the case in the real world. The actual model is often called “endogenous money”. As I said, the confusion many people have is that it is correct that bank reserves are a fraction of the bank’s assets, so the name “fractional reserve” would intuitively seem correct. This is a good description of how they actually work from the UK’s central bank: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...