2 ms·
Wouldn't counting savings as M1 allow the bank to create additional M2 due to fractional reserve?
by thebean11 5y ago
Wouldn't counting savings as M1 allow the bank to create additional M2 due to fractional reserve?
- karagenit 5y agoI don't think so. When the pandemic hit, the fed made the reserve ratio 0% for all accounts, so counting savings accounts as M1 wouldn't really change how much money banks could lend. However, even under normal circumstances (transactional accounts have a reserve ratio of 10%, other accounts have a reserve ratio of 0%) counting savings accounts as transactional (M1) would actually increase the reserve requirement for banks, decreasing the amount they could loan and therefore decreasing M2 overall.