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Likewise in the naive view, if the central bank loans a commercial bank a bunch of cash, then the commercial bank can use that cash to make loans.
by OscarCunningham 4y ago
Likewise in the naive view, if the central bank loans a commercial bank a bunch of cash, then the commercial bank can use that cash to make loans.
- CraigJPerry 4y agoThat doesn’t hold - the central bank could loan all the cash (really we mean reserves) it wants and the bank still be unable to make a loan. Because the bank cannot break its capital requirements and the central bank can do nothing to help that situation. Similarly the central bank could loan nothing and the commerical bank could loan millions.
- throw0101a 4y ago> Likewise in the naive view, if the central bank loans a commercial bank a bunch of cash, then the commercial bank can use that cash to make loans. Define "cash". What the central bank gives to banks is not the money you and I use: what is given is not something that can be turned around and used in a business loan or a residential mortgage. What the central bank 'gives' banks is simply a credit in their reserve account for inter-bank settlements. And having more reserves makes little difference in the creation loans, as (as mentioned before) some places don't even have reserve requirements: * https://en.wikipedia.org/wiki/Reserve_requirement#Countries_and_districts_without_reserve_requirements https://en.wikipedia.org/wiki/Reserve_requirement#Countries_...