Comment by throw0101a
1 year ago
> So for every $1 deposited, I can lend $0.90 but must hold $0.10 as my reserve?
The GP is completely wrong on how modern finance works. Banks do not lend out deposits. This was called the "Old View" by Tobin in 1963:
* https://elischolar.library.yale.edu/cowles-discussion-paper-...
The Bank of England has a good explainer on how money is created:
* https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
See also Cullen Roche:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
Partially untrue:
Yes, they do not need customer deposits to create loans and increase their balance sheet, there are just some guys like you and me, putting the amount in the balance sheet and clicking save (simply put)
But yes, they need to have at least some customer deposists to make payments happen, since if they do not have any deposits, their central banking account would be empty, therefore none of your loans could actually leave your bank since the transaction wont happen. (i'm talking from perspective of TARGET2 / ECB / EURO system)