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Is there a misconception in the text of my previous comment? You seem to be describing a misconception that as far as I can tell isn't one I hold or one I expre

Is there a misconception in the text of my previous comment? You seem to be describing a misconception that as far as I can tell isn't one I hold or one I expressed in my previous comment.

stonemetal12 4y ago
> loan out much more than 1 dollar They can't loan out more than the deposits they have.
- charcircuit 4y ago
  Why not? A bank could have 0 depsitors, but could have received money from investors.
  - majormajor 4y ago
    That's not the sort of bank being talked about here in terms of "money multiplication." That's more like a VC firm or other institution. If you could open a bank, accept 10 dollars in deposits, and loan out 100, you'd do it! You'd loan it out to your best friend and keep the cycle going until you're rich AF. You can't loan out more than you have, but even loaning out 10 of 10 dollars has some risk - if someone comes for their money and you can't get your money back from the people you loaned it to. And it definitely increases money in circulation since it's not parked there. But it's not a magic money printing machine.
  - stonemetal12 4y ago
    The Federal Reserve says you may loan out 100% of your deposits. They didn't say you could loan out however much you have in investors' money, or 200% of your deposits.
lottin 4y ago
The misconception in your comment is that the reserve requirement is what limits a bank's ability to create money by extending loans.
- tshaddox 4y ago
  I'm no expert, and I know that banking is a lot more complicated in practice, and that reserve requirements in the U.S. (even before they went to zero) were apparently not a significant factor in what actually put a ceiling on banks' ability to lend. There were apparently all sorts of tricks banks used to not be bound in practice to reserve requirements.
  - lottin 4y ago
    Yes, reserve requirements are not a significant factor, because in addition to reserve requirements banks are also subject to capital requirements. Moreover banks need reserves to operate anyway regardless of whether they're mandated by law or not. Finally they're also constrained by the demand for loans, which isn't infinite.
  - denimnerd42 4y ago
    it's the capital requirements or capital to risk weighted assets ratio that restrict lending, not reserve requirements. reserve requirements are to protect runs by depositors and capital requirements are to protect the bank against bad loans. at the end of every month and especially every quarter the bank submits its capital ratio and a bunch of other calculations to the regulators. if the ratio isn't good it has to increase capital reserves. if the ratio is good it can do share buybacks and dividends. https://en.wikipedia.org/wiki/Basel_III https://en.wikipedia.org/wiki/Basel_III

Is there a misconception in the text of my previous comment? You seem to be describing a misconception that as far as I can tell isn't one I hold or one I expressed in my previous comment.

stonemetal12 4y ago

> loan out much more than 1 dollar They can't loan out more than the deposits they have.

charcircuit 4y ago
Why not? A bank could have 0 depsitors, but could have received money from investors.
- majormajor 4y ago
  That's not the sort of bank being talked about here in terms of "money multiplication." That's more like a VC firm or other institution. If you could open a bank, accept 10 dollars in deposits, and loan out 100, you'd do it! You'd loan it out to your best friend and keep the cycle going until you're rich AF. You can't loan out more than you have, but even loaning out 10 of 10 dollars has some risk - if someone comes for their money and you can't get your money back from the people you loaned it to. And it definitely increases money in circulation since it's not parked there. But it's not a magic money printing machine.
- stonemetal12 4y ago
  The Federal Reserve says you may loan out 100% of your deposits. They didn't say you could loan out however much you have in investors' money, or 200% of your deposits.

lottin 4y ago

The misconception in your comment is that the reserve requirement is what limits a bank's ability to create money by extending loans.

tshaddox 4y ago
I'm no expert, and I know that banking is a lot more complicated in practice, and that reserve requirements in the U.S. (even before they went to zero) were apparently not a significant factor in what actually put a ceiling on banks' ability to lend. There were apparently all sorts of tricks banks used to not be bound in practice to reserve requirements.
- lottin 4y ago
  Yes, reserve requirements are not a significant factor, because in addition to reserve requirements banks are also subject to capital requirements. Moreover banks need reserves to operate anyway regardless of whether they're mandated by law or not. Finally they're also constrained by the demand for loans, which isn't infinite.
- denimnerd42 4y ago
  it's the capital requirements or capital to risk weighted assets ratio that restrict lending, not reserve requirements. reserve requirements are to protect runs by depositors and capital requirements are to protect the bank against bad loans. at the end of every month and especially every quarter the bank submits its capital ratio and a bunch of other calculations to the regulators. if the ratio isn't good it has to increase capital reserves. if the ratio is good it can do share buybacks and dividends. https://en.wikipedia.org/wiki/Basel_III https://en.wikipedia.org/wiki/Basel_III