Stupid question about fractional reserve banking, please help!

[Josh_LA]

I am making a website discouraging people to put money in CDs, savings, bonds.

I want to know where we can read the official banking policies as to how much a bank can loan compared to what they actually have.

Yes, the simple "you put in a dollar they can lend out 10" kind of numbers. I heard it's different from checking accounts, savings accounts, CDs, and such. So whoever can point me to the page, or copy the data (with sources) would be much appreciated.

 

[nate895]

They can lend the whole of CDs, as long as at least 1/10 of the money comes due before the CD matures. This goes for any not-on-demand deposit.

 

[gaazn]

google: "reserve ratio"

 

[Josh_LA]

They can lend the whole of CDs, as long as at least 1/10 of the money comes due before the CD matures. This goes for any not-on-demand deposit.

source please. we've all heard 1/10, but it differs and obviously somebody broke some rules this year.

 

[nate895]

source please. we've all heard 1/10, but it differs and obviously somebody broke some rules this year.

Even under a full reserve system, you can lend out 100% of non-savings and non-checking account deposits, I don't know why it'd be any different under fractional reserve as far as CDs and IRAs go.

 

[Josh_LA]

Even under a full reserve system, you can lend out 100% of non-savings and non-checking account deposits, I don't know why it'd be any different under fractional reserve as far as CDs and IRAs go.

how about sources? thanks.

 

[nate895]

how about sources? thanks.

I don't have sources, my mom is an accountant and gives me financial advice, that's my source.

 

[nate895]

http://www.newyorkfed.org/aboutthefed/fedpoint/fed45.html

There, I found a source. It's the Fed, but it works.

 

[Fox McCloud]

Banks don't lend out x9 whatever they have in reserves.

whatever the deposits are, 10% are reserves; the other 90% are classified as "excess reserve" which can be loaned out for a profit. Here's the thing though, if they have 1000 in deposits, and they loan out $900, they don't have $100 left; they still have $1000. Why? The $900 they loan out is completely new money, created from thin air.

under a 10% reserve requirement, the banks can theoretically push the money supply x9 what the original base was.

I recommend "The Creature From Jekyll Island: A Second Look at the Federal Reserve"; his sources are sound, and his book very very well researched.

 

[Josh_LA]

http://www.newyorkfed.org/aboutthefed/fedpoint/fed45.html

There, I found a source. It's the Fed, but it works.

the Fed is nothing wrong, it's exactly who makes the policies and what I wanted to see.

 

[nate895]

the Fed is not a "but" it's exactly who makes the policies and what I wanted to see.

I just hate it with so much passion that I dislike giving their website hits.

 

[Josh_LA]

Banks don't lend out x9 whatever they have in reserves.

whatever the deposits are, 10% are reserves; the other 90% are classified as "excess reserve" which can be loaned out for a profit. Here's the thing though, if they have 1000 in deposits, and they loan out $900, they don't have $100 left; they still have $1000. Why? The $900 they loan out is completely new money, created from thin air.

under a 10% reserve requirement, the banks can theoretically push the money supply x9 what the original base was.

So yeah, why lend out $900 when you got $1000 solid (you'd have to wait for this to come back before you make another loan), if you can keep $1000 solid reserve and lend out $9000?

 

[Fox McCloud]

So yeah, why lend out $900 when you got $1000 solid (you'd have to wait for this to come back before you make another loan), if you can keep $1000 solid reserve and lend out $9000?

because the system doesn't work that way; the Fed sets a reserve limit, and that's what the banks abide by.

 

[Josh_LA]

because the system doesn't work that way; the Fed sets a reserve limit, and that's what the banks abide by.

so I basically misunderstood the policy.

They can only lend out what they HAVE IN HAND (and keep a fraction in), not expand outward based on what they have?

I'm still looking for more official policy sources,

 

[nate895]

so I basically misunderstood the policy.

They can only lend out what they HAVE IN HAND (and keep a fraction in), not expand outward based on what they have?

I'm still looking for more official policy sources,

Otherwise we'd have banks printing up money like crazy. Hyperinflation would have hit many moons ago.

 

[shocker315]

MODERN MONEY MECHANICS
A Workbook on Bank Reserves and Deposit Expansion
Federal Reserve Bank of Chicago
This complete booklet is was originally produced and distributed free by: Public Information Center Federal Reserve Bank of Chicago

http://www.truthsetsusfree.com/ModernMoneyMechanics.pdf

All good info...but check out pages 11 and 12.

We are all lead to believe that our deposits are loaned out to borrowers. This is a half truth...it is only the basis for of how much money can be created, but it is not the same money loaned out.

Great quote from the Fed bottom of page 6

"Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created."

 

[Bradley in DC]

Why not focus on the Fed monetizing the budget deficits causing all of the inflation, malinvestment, boom-and-busts and enabling war finance?

 

[jon_perez]

Is it "you put in a dollar they can lend out 10" or "you put in 10 dollars and they can lend out 9 and only keep 1 in reserve" ?

The former involves creation of new money, while the latter is what's more accurately characterized as fractional reserve. They're not exactly equivalent from how I'm analyzing it. Perhaps someone can more clearly explain how the two are supposed to be equivalent.

 

[nate895]

Is it "you put in a dollar they can lend out 10" or "you put in 10 dollars and they can lend out 9 and only keep 1 in reserve" ?

The former involves creation of new money, while the latter is what's more accurately characterized as fractional reserve. They're not exactly equivalent from how I'm analyzing it. Perhaps someone can more clearly explain how the two are supposed to be equivalent.

It's the latter.

 

[weatherbill]

nOW THEY CAN NAKED SHORT FRN'S and print up as many as they like....LOL

same thing as naked shorting...... phantom shares..... I bet there are alot of phantom dollars out there....who would know if they started printing them up?

The Fed has never been audited and if there were an emergency, they could simply add them with the few pushes of some zeros of a computer......