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by soVeryTired
1048 days ago
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What's taught in undergrad economics courses is incorrect. Fractional reserve banking doesn't really exist anymore. Banks don't lend out the deposits they recieve, they create new ones 'out of thin air'. Arguably the most important constraint on a bank's ability to create new loans (and hence new deposits) is its core tier one capital ratio: that is, its total liabilities divided by its shareholders' equity. |
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