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Thanks for the response! I'm definitely no expert but I think I understand the basics. Other commenters made a similar point about reserve requirements, I defi

Thanks for the response! I'm definitely no expert but I think I understand the basics. Other commenters made a similar point about reserve requirements, I definitely overstated their importance. Interesting to hear about the A&L limits and kind of terrifying to know the limits are self-imposed.

kasey_junk 4y ago
The a&l regulatory requirements are certainly not self imposed. And the limits aren’t just in the form of rough ratios. They outline the classes of debt the balance sheets can have, how they are accounted for, operational procedures around the balance sheet and extensive reporting requirements. But after 2008 equity holders became more risk adverse so demand tighter deposit to loan ratios. This caused the banks to disengage with lending, one of the things that caused the fed to remove the reserve requirement.