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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