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by ubercow13
1742 days ago
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Well yes, this article is about the UK. But the paper is quite clear that in practice, it is not any reserve requirement that effectively determines how many loans a bank will create. I am guessing this applies equally to other modern economies even if they have such a limit? It's one sentence but the context is that the whole paper is arguing against the textbook explanation of fractional reserve banking GP stated - the "two common misconceptions" stated in the introduction. |
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But according to that article it may be, because that bank will need to increase reserves to expand lending and acquiring them has a cost.
“But that does not mean that any given individual bank can freely lend and create money without limit. That is because banks have to be able to lend profitably in a competitive market, [……] whether through deposits or other liabilities, the bank would need to make sure it was attracting and retaining some kind of funds in order to keep expanding lending. And the cost of that needs to be measured against the interest the bank expects to earn on the loans it is making,“