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by fragmede
1300 days ago
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Oh interesting. That seems academic given the reserve requirements by the Fed under Regulation D which basically says every bank must have $x dollars in reserve for every $10 loaned out. Thus, the bank already has to have that $10 deposit before it's able to make the loan, but as long as those reserve requirements are met, they can make all the loans they want. Given the size of a commercial bank with deposits and withdrawals going on constantly across many customers, they run with some amount of margin, but basically they'll be able to make a good number of loans before they're anywhere close to their reserve limit. So to answer your question... sorta? https://www.federalreserve.gov/monetarypolicy/reservereq.htm |
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So, the side I don't particularly like goes like this. Alice deposits $10 into Bob's Bank. Bob's bank now has $10 of liabilities (Alice's account) and $10 of assets (Alice's ex-Money). Charlie _wants_ a loan of $10. Bob records an increase of assets by $10 so now the bank has $20 in assets and records a corresponding increase in liabilities (to balance out the minted money) of $10 so now the bank has $20 in liabilities. Then the bank gives Charlie this _new_ money. In essence, the bank is not giving out depositor's money for loan but instead new money. (See the Bank of England (BOE) paper for details showing this [1]).
My argument is that (1) the same BOE paper shows that whenever that minted money needs to leave the minting bank's computer systems an equal amount of money from somewhere (either that bank or the receiving bank) will be destroyed. (2) That money will commonly move between banks. Therefore the fact that money is minted is irreverent because it's subsequently quickly destroyed.
Side note, it makes total sense to me that a bank would rather mint money in a lump sum exactly equal to the amount needed for a loan than figure out what fractions of the loan should come from what depositor. Its just practical.
[1]: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...