Oh no not at all, you're right. I'm not sure if this is the correct terminology but, googling it, I think it's called reserve requirement. "The reserve requirem

Oh no not at all, you're right. I'm not sure if this is the correct terminology but, googling it, I think it's called reserve requirement. "The reserve requirement sets the minimum reserves each bank must hold to demand deposits and banknotes." [1] An example they give is Hong Kong whose banks must hold 25% of their liabilities. During the subprime mortgage, American banks (and some foreign banks but I can't recall them) were deregulated in a way that allowed them to have a higher ratio between their liabilities and what they actually held. This meant they could increase their financial investments without really having the money. I can't remember the exact ratio but it was something like 40-1. [1] http://en.wikipedia.org/wiki/Bank_regulation#Reserve_requirement http://en.wikipedia.org/wiki/Bank_regulation#Reserve_require...