Comment by kasey_junk
4 days ago
Reserve ratios have not been the major capital constraint for a very long time. Loan to deposit ratios have been. And those have stayed in normal bounds since the great financial crisis. Both bank regulators and importantly bank investors keep on top of this because they are the ones to lose the most if it gets out of wack.
The reserve requirement had to be loosened because banks became too conservative, largely because their investors were skittish about ldr.
You think that there might be a "quality to the quantity" wrt deposit levels after years in an ultra-low interest rate environment? IIRC, deposits in SVB, FRB, and Signature combined outsized WaMu, with the difference being that WaMu was one of the largest banks in the country, while the average person had not heard of Silicon Valley Bank et al. until the day "Silicon Valley Bank Fails," lit up headlines.
At least in the svb and frb case high ldr contributed to the bank runs that ended them. But note in this context frb at .96 was seen as bad and svb at 1.6 was disastrous(.7 is good).
Thats the real brake on money creation by banks, not the reserve requirement.