[neilwilson]

"Try to start a commercial bank without any capital, it will be a fun exercise."

It's precisely the same. You issue shares to subscribers and mark them as nil paid.

That is capital - because you have a call on their resources - much as the names of Lloyds of London capitalise the insurance market.

Reserves are irrelevant to banking. Here in the UK we didn't even have reserves until 2005 yet we'd been operating a central banking system for 300 years at that point.

This obsession with central bank reserves is a peculiarly American concept.

Loans create deposits, and the central bank simply accommodates the simulation of money moving around the payment system.

There is no control function from central bank reserves. It's a complete myth. If the central bank tries, monetarist style, then the payment system breaks, fires break out and they have to back off. Hence the Bank Term Funding Program.

There comes a point when the belief in bags of coins and fixed amounts of money has to die.