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>and it is not allowed to make any more loans. No. From the paper >In reality, neither are reserves a binding constraint on lending, nor does the central bank

>and it is not allowed to make any more loans. No. From the paper >In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available.

IncRnd 5y ago
That's just randomly quoting sentences out of context. What you quoted is from the standpoint of a particular central bank, not from the standpoint of an arbitrary lending bank. Absolutely, many lending banks have reserve requirements imposed upon them, just not in the particular country of this paper!
- ubercow13 5y ago
  Well yes, this article is about the UK. But the paper is quite clear that in practice, it is not any reserve requirement that effectively determines how many loans a bank will create. I am guessing this applies equally to other modern economies even if they have such a limit? It's one sentence but the context is that the whole paper is arguing against the textbook explanation of fractional reserve banking GP stated - the "two common misconceptions" stated in the introduction.
  - kgwgk 5y ago
    > it is not any reserve requirement that effectively determines how many loans a bank will create But according to that article it may be, because that bank will need to increase reserves to expand lending and acquiring them has a cost. “But that does not mean that any given individual bank can freely lend and create money without limit. That is because banks have to be able to lend profitably in a competitive market, [……] whether through deposits or other liabilities, the bank would need to make sure it was attracting and retaining some kind of funds in order to keep expanding lending. And the cost of that needs to be measured against the interest the bank expects to earn on the loans it is making,“
- soVeryTired 5y ago
  In most counties in the west, reserve requirements don't constrain lending. For example, Canada, the UK, and Australia have a reserve requirement of zero. Fractional reserve banking doesn't really exist anymore outside of economics textbooks. Capital requirements are what constrain lending in the west (I think the Chinese government does try to control lending in part via a reserve requirement). For example, the "Core Tier 1 Capital Ratio" [0] is extremely important in this regard. https://www.investopedia.com/terms/t/tier-1-capital-ratio.asp https://www.investopedia.com/terms/t/tier-1-capital-ratio.as...
  - IncRnd 5y ago
    The United States has reserve requirements. The EU has reserve requirements. India has reserve requirements.
    - soVeryTired 5y ago
      I never claimed they didn't. I claimed the reserve requirements didn't constrain lending.

IncRnd 5y ago

That's just randomly quoting sentences out of context. What you quoted is from the standpoint of a particular central bank, not from the standpoint of an arbitrary lending bank. Absolutely, many lending banks have reserve requirements imposed upon them, just not in the particular country of this paper!

ubercow13 5y ago
Well yes, this article is about the UK. But the paper is quite clear that in practice, it is not any reserve requirement that effectively determines how many loans a bank will create. I am guessing this applies equally to other modern economies even if they have such a limit? It's one sentence but the context is that the whole paper is arguing against the textbook explanation of fractional reserve banking GP stated - the "two common misconceptions" stated in the introduction.
- kgwgk 5y ago
  > it is not any reserve requirement that effectively determines how many loans a bank will create But according to that article it may be, because that bank will need to increase reserves to expand lending and acquiring them has a cost. “But that does not mean that any given individual bank can freely lend and create money without limit. That is because banks have to be able to lend profitably in a competitive market, [……] whether through deposits or other liabilities, the bank would need to make sure it was attracting and retaining some kind of funds in order to keep expanding lending. And the cost of that needs to be measured against the interest the bank expects to earn on the loans it is making,“
soVeryTired 5y ago
In most counties in the west, reserve requirements don't constrain lending. For example, Canada, the UK, and Australia have a reserve requirement of zero. Fractional reserve banking doesn't really exist anymore outside of economics textbooks. Capital requirements are what constrain lending in the west (I think the Chinese government does try to control lending in part via a reserve requirement). For example, the "Core Tier 1 Capital Ratio" [0] is extremely important in this regard. https://www.investopedia.com/terms/t/tier-1-capital-ratio.asp https://www.investopedia.com/terms/t/tier-1-capital-ratio.as...
- IncRnd 5y ago
  The United States has reserve requirements. The EU has reserve requirements. India has reserve requirements.
  - soVeryTired 5y ago
    I never claimed they didn't. I claimed the reserve requirements didn't constrain lending.