[btown]

With the caveat that I’m by no means an economist...

The table at the bottom puts this in context: reserve requirements, which have never been reduced by more than $2 billion across the economy in any year prior, are suddenly reduced by $200 billion - the entire regulatory program seems to have been unwound.

Presumably this will give late banks desperately needed liquidity and ability to lend, but it also increases systemic risk. Desperate times these are indeed, but this is an unprecedented measure.

[dnautics]

It's completely insane that they describe this in linear terms. The effects of reducing the reserve requirement is inverse-linear with respect to the ratio. Since the money multiplier is 1/r, reducing the reserve requirement to 0 means that any dollar has an unbounded limit as to how far it can be re-lent. That is quite literally infinitely more unprecedented than a 100x bigger dislodging of the "reduction in the reserve requirement".

[notahacker]

The reserve requirement limit is purely theoretical anyway, since the Fed is obliged to pump more reserves into the system to maintain its interest rate targets when commercial banks [net] lend in excess of their current reserves anyway. The UK hasn't had a reserve requirement since 1981.

[JumpCrisscross]

> UK hasn't had a reserve requirement since 1981

Capital requirements remain in place, for both British and American banks. (As remain reserve requirements for most assets at American banks.)

[notahacker]

Agreed (I nearly mentioned it in the original post), and stricter capital requirements now than for much of the period since 1981. (Capital requirements don't entirely restrict the capability of the commercial banking sector to expand the money supply either, but they do require undercapitalised banks to raise more equity funding or similar if they want to continue to expand their loan portfolio)

[yasp]

(In non-exceptional circumstances, this would be via the discount window, which happens rarely in practice, due to stigma.)

[quotemstr]

It won't reach infinity right away though. Monetary velocity is finite, and right now, I'd guess rather slow.

[dnautics]

of course de facto the money multiplier is always lower than the theoretical limit. That's why I said "unbounded" not "infinite".

[gowld]

How so? Borrowed money can only be re-lent if the person who borrowed it puts the money in a transaction account. Why would anyone bother to do that?

[jstrom]

We typically assume that loans are taken for some immediate use (rather than just having cash on hand). Thus you get the following scenario:

Bank loans $money to person A. Person A uses the $money to buy from person B. Person B deposits $money into the Bank. Bank now has $money (less reserve requirements) available to lend.

[mattrp]

If I understand it right this impacts the reserve kept for loans. It keeps banks from calling in loans for all sorts of businesses - particularly those that are owned by your neighbors and employ that vast majority of workers.