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If the bank that creates the loan and subsequent deposit is the same bank, then its like creating money out of thin air, as they would be responsible for the re
by bubbleRefuge 4y ago
If the bank that creates the loan and subsequent deposit is the same bank, then its like creating money out of thin air, as they would be responsible for the reserve requirement imposed on them by that deposit. Reserve requirements can be zero and usually don't have to be met until the next accounting period. So there are not funding constraints on making loans.
- notahacker 4y agoI never argued there were funding constraints on making loans (there are capital constraints, but they're fuzzier). But the deposit is the bank's liability, not its asset (unlike, say, an organization having the ability to mint coins or cryptotokens for its own use from thin air; much more like Amazon's ability to create as many $10 vouchers as it wants, provided it's got a way of paying its vendors when people try to spend the vouchers). The only reason anybody else treats the increased number in the customer's bank account as "money" equivalent to cash is that the bank can borrow currency if and when it needs it (and remain solvent because eventually the customer will pay the bank back)
- bubbleRefuge 4y agoYeah. Sounds good. The bank needs reserves, order federal money, base, or inside money(call it what you want) to meet deposit liabilities when they are called such as when the deposit owner writes a check to another bank or when funds are withdrawn for cash.