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by jobigoud
2509 days ago
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> That £100 that is loaned out, hasn't appeared from the ether, its my £100 that I deposited. It's not. It's hard to believe at first but the bank just write +£100 in your account and that's essentially it. The bank can loan £100 before you deposit them. The £100 you deposited were loaned to your employer by another bank. The deposits don't fuel the loans, the loans fuel the deposits. |
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"The fractional reserve theory where the money supply is limited by the money multiplier has come under increased criticism since the financial crisis of 2007–2008. It has been observed that the bank reserves are not a limiting factor because the central banks supply more reserves than necessary and because banks have been able to build up additional reserves when they were needed. Many economists and bankers now realize that the amount of money in circulation is limited only by the demand for loans, not by reserve requirements."
https://en.m.wikipedia.org/wiki/Money_creation
If so, isnt it more the case that that deposit had just been waiting around waiting for someone wanting credit.
If you are literally saying the money comes from the ether, why even let people make deposits at all. If you can create money you can pay 0% interest on it, rather than the 1/2/3% that I'd demand, and you wouldn't have to worry about bank runs either.
From what I can gather its more of a model, than a literal truth. If you apply for a loan from $bankx then they will tell your $banky to increase your balance by $100. That is all electronic and basically an article of faith between the banks, no gold bullion gets transferred or whatever. Ultimately it does need to be grounded in reality somewhere. I can't set up $bankz and just start making $100 trillion worth of loans backed with nothing but a banking licence.