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The reserve rate is currently 0. Yes, 0. That means banks can loan infinite money, and are limited only by the amount of people that can afford to hold more deb

The reserve rate is currently 0. Yes, 0. That means banks can loan infinite money, and are limited only by the amount of people that can afford to hold more debt. >As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm Everything is fine.

rthomas6 6y ago
Wow. ...How hard is it to start a bank? Edit: Wait a minute. What incentive is there now for banks to even try to entice people to deposit their money?
- orthecreedence 6y ago
  > What incentive is there now for banks to even try to entice people to deposit their money? Two things come to mind: - Banks can blast you in the ass with fees, which they seem to love doing, so your (real) money becomes their (real) money by virtue of some 600-page long illegible contract - At some point, the Fed might increase this rate again, at which point I don't know what happens, but banks might have to start getting capital on-hand to meet the reserve. Maybe they want money in there just in case? I don't know the rules around "ok, the rate was 1% but now it's 10% so you banks better a) get the money immediately? b) get it in the next 10 years? c) ???"
- zajio1am 6y ago
  Zero reserve rate does not mean no practical limitation on money creation. Banks can 'create money' on accounts of their clients (as these accounts represent just obligations of the bank to their clients). But once created, if clients want to use these money outside of the bank (say to pay for a service to someone who has account in another bank), then bank must move equal amount of 'base money' to another bank (or to give cash). If a bank have balanced inflows and outflows of base money, then it can 'create money' in the same pace as other banks in order to stay balanced (if it 'creates money' faster than other banks, then outflows would rise faster than inflows, and the bank has to sell some assets to compenstate).

rthomas6 6y ago

Wow. ...How hard is it to start a bank? Edit: Wait a minute. What incentive is there now for banks to even try to entice people to deposit their money?

orthecreedence 6y ago
> What incentive is there now for banks to even try to entice people to deposit their money? Two things come to mind: - Banks can blast you in the ass with fees, which they seem to love doing, so your (real) money becomes their (real) money by virtue of some 600-page long illegible contract - At some point, the Fed might increase this rate again, at which point I don't know what happens, but banks might have to start getting capital on-hand to meet the reserve. Maybe they want money in there just in case? I don't know the rules around "ok, the rate was 1% but now it's 10% so you banks better a) get the money immediately? b) get it in the next 10 years? c) ???"
zajio1am 6y ago
Zero reserve rate does not mean no practical limitation on money creation. Banks can 'create money' on accounts of their clients (as these accounts represent just obligations of the bank to their clients). But once created, if clients want to use these money outside of the bank (say to pay for a service to someone who has account in another bank), then bank must move equal amount of 'base money' to another bank (or to give cash). If a bank have balanced inflows and outflows of base money, then it can 'create money' in the same pace as other banks in order to stay balanced (if it 'creates money' faster than other banks, then outflows would rise faster than inflows, and the bank has to sell some assets to compenstate).