Sorry to be the bearer of bad news.. The fault tolerance of banks using FRB, is approximately 1% of loan capital per year. Any more than that, and they are driv

Sorry to be the bearer of bad news.. The fault tolerance of banks using FRB, is approximately 1% of loan capital per year. Any more than that, and they are driven into regulatory incompliance - which then has monetary significance. Reserves don't actually play a roll in loss management, bad loans have to be written off against loss provisions and/or profits - liability/equity accounts. Basel 3 has put mandatory limits on how much loss provisions/capital has to be held, but it hasn't solved the fundamental problem with the interaction with the money supply.