[jVinc]

> most banks are highly levered, meaning they're lending out, say, 10× the cash they hold, so they never "have too much cash on hand".

Reconsider what your stating here. If I have 10$, and I can therefore lend out 100$, but I only have requests to borrow 50$, then I have "too much cash". If I however had requests to borrow 200$, the I would need to find another 10$, for instance by promising someone a higher interest rate on their accounts. The fact that banks do fractional reserve does in no way guarantee that they do not end up having more cash on hand than they need to cover the demand for loans.

[khaki54]

The fractional reserve has been set to zero

[prepend]

Thus the reference to a marketing error.

Banks that have too much cash on hand go out of business. If a bank ends up being near this it just reduces its loan rates and loans the money out for slightly less, but still better than sitting on cash.

[mlyle]

> Banks that have too much cash on hand go out of business. If a bank ends up being near this it just reduces its loan rates and loans the money out for slightly less, but still better than sitting on cash.

Right.. The bank can increase its level of leverage principally by:

* Decreasing loan interest rates to encourage people to take loans

* and/or decreasing savings interest rates to discourage people from keeping deposits.

Of course, real banks do both based on market conditions and capital requirements. And, of course, there's not an implausibly thin level of reserves like you imply to pedantically harass the prior commenter: you must have at least the required reserves, and certainly having way too much cash is toxic to profitability.