Fractional-reserve Banking.

[Paul Rusco]

Hi guys, out of curiosity, what is your opinion on the practice of Fractional-reserve Banking?

Do you support it, or do you disagree with it?

If you disagree, then would you prefer Full-reserve Banking instead, or just a higher reserve ratio etc?

[enchanted_one1975]

Fractional makes sense to me, as the whole reason a depositor is paid interest is because the financial institution is able to use the deposited funds to make more money. This only feels comfy-cozy when it is backed by a program such as the FSLIC though.

[Paul Rusco]

Originally Posted by enchanted_one1975

Fractional makes sense to me, as the whole reason a depositor is paid interest is because the financial institution is able to use the deposited funds to make more money. This only feels comfy-cozy when it is backed by a program such as the FSLIC though.

I've not heard of FSLIC before, but after looking it up it appears to be no longer in operation.

But anyways, is it not fair to presume that everytime the Banks create new money off of one's deposits, they're inflating the currency?

Think about it: if they're creating new money off of deposits, but the new money is considerably more than the deposits, then wouldn't that lead to too much money being created etc?

I don't know much about Economics to be fair, so I'm trying to understand the banking process etc, and honestly it all seems to make no sense!

I thought Banks were meant to lend money, not create more and more money LOL!

Also, would you prefer to make no interest in your deposits, but have a full-reserve system instead - I mean, wouldn't that make your money more secure and safer (which is what Banks should be for IMO, a safe haven for your cash).

[Adso]

Originally Posted by Paul Rusco

I've not heard of FSLIC before, but after looking it up it appears to be no longer in operation.

The FSLIC and FHLBB have been replaced by the FDIC after the savings and loans crisis in the 1980's. I wouldn't feel comfortable with the FDIC though, as it is heading down the same path as the FSLIC to insolvency. The FDIC's Deposit Insurance Fund is officially in negative territory and will remain there for years.

FDIC: Frequently Asked Questions on Prepaid Assessments

11. When is the DIF expected to go negative?
The DIF balance as of September 30, 2009 was negative.

That's from the FDIC's own website, and if you note further down at question 15, if FDIC does need to pay out, they'll just have the Treasury borrow the money. The whole thing is a farce.

But anyways, is it not fair to presume that everytime the Banks create new money off of one's deposits, they're inflating the currency?

Not necessarily: Nov 3, 2009 Bank Reserves and Inflation Steve Saville 321gold ...inc ...s

The following chart shows that bank reserves held at the Fed have increased 100-fold over the past 14 months -- from around $10B in August of 2008 to around $1000B ($1T) today. It is important to understand that while this explosion in the reserves of US depository institutions has rightfully prompted much discussion and consternation, it hasn't directly added to the total supply of US dollars (bank reserves are not counted in monetary aggregates such as M1, M2, M3, MZM and TMS). The reason that bank reserves aren't added to the money supply is that they do not constitute money available to be spent within the economy; rather, they constitute money that could be loaned into the economy or used to support additional bank lending in the future.

1) Lending comes first and what little reserves there are (if any) come later.
2) There really are no excess reserves.
3) Not only are there no excess reserves, there are essentially no reserves to speak of at all. Indeed, bank reserves are completely "fictional".
4) Banks are capital constrained not reserve constrained.
5) Banks aren't lending because there are few credit worthy borrowers worth the risk.

(The above is a breakdown of the issue that I found simple and useful, but I can't recall where it's from, sorry.)

Hopefully that was kind of near your question, but if not let me know.

[Paul Rusco]

Originally Posted by Adso

The FSLIC and FHLBB have been replaced by the FDIC after the savings and loans crisis in the 1980's. I wouldn't feel comfortable with the FDIC though, as it is heading down the same path as the FSLIC to insolvency. The FDIC's Deposit Insurance Fund is officially in negative territory and will remain there for years.

Originally Posted by Adso

FDIC: Frequently Asked Questions on Prepaid Assessments



That's from the FDIC's own website, and if you note further down at question 15, if FDIC does need to pay out, they'll just have the Treasury borrow the money. The whole thing is a farce.


Not necessarily: Nov 3, 2009 Bank Reserves and Inflation Steve Saville 321gold ...inc ...s

1) Lending comes first and what little reserves there are (if any) come later.
2) There really are no excess reserves.
3) Not only are there no excess reserves, there are essentially no reserves to speak of at all. Indeed, bank reserves are completely "fictional".
4) Banks are capital constrained not reserve constrained.
5) Banks aren't lending because there are few credit worthy borrowers worth the risk.

(The above is a breakdown of the issue that I found simple and useful, but I can't recall where it's from, sorry.)

Hopefully that was kind of near your question, but if not let me know.

Thanks Adso, I'm interested in how the banking system works and all the ins-and-outs etc. Your information was useful yes. I'll look into the Reserve methods more in the future when I have the time

P.S, if bank Reserves are fictional, then how can the banks print off new money and make loans? Doesn't there need to be a Fractional-Reserve Ratio which dictates that for every loan they create, they need a certain ratio of deposits vs new loan money?

[imaginaryme]

Originally Posted by Paul Rusco

Thanks Adso, I'm interested in how the banking system works and all the ins-and-outs etc. Your information was useful yes. I'll look into the Reserve methods more in the future when I have the time

P.S, if bank Reserves are fictional, then how can the banks print off new money and make loans? Doesn't there need to be a Fractional-Reserve Ratio which dictates that for every loan they create, they need a certain ratio of deposits vs new loan money?

Check this...
Zeitgeist: Addendum
I really don't know these people's agenda; but their information coincides with bits and pieces picked up from a lifetime of "not liking money at all" and seems to be well documented.

Bottom line - scam. Modern currency is an instrument of debt and nothing more - with the passing of the gold standard, it ain't worth the paper it is printed on. Deposits are supposedly ten percent, but like it says in the video, it's only an electronic shell game. Obama's bank bailout - sold to the public as a nine hundred billion dollar incentive - made something like 23 trillion - that's trillion - dollars just disappear. As I posted elsewhere, last time I checked, this country's entire GNP was 13 trillion...

Some of these people who post these videos are straight out of the "tin-foil-hat" crowd; but the conceit of the banking industry is such that similar numbers have been making headlines... so, evil nonsense; if you ask me.

[Adso]

Originally Posted by Paul Rusco

Thanks Adso, I'm interested in how the banking system works and all the ins-and-outs etc. Your information was useful yes. I'll look into the Reserve methods more in the future when I have the time

If you'd like, I'll write up a list of books that helped me figure out what very little I know. Is there a particular financial theory you find interesting, like Keynesian, Monetarist, or Austrian?

P.S, if bank Reserves are fictional, then how can the banks print off new money and make loans?

Simply put, mostly out of thin air, and on a large table of assumption.

Doesn't there need to be a Fractional-Reserve Ratio which dictates that for every loan they create, they need a certain ratio of deposits vs new loan money?

There is a ratio; I believe the current reserve ratio requirement is 10%. Although personally, I highly doubt that it's there.

[sandy whitelinger]

Originally Posted by Paul Rusco

Hi guys, out of curiosity, what is your opinion on the practice of Fractional-reserve Banking?

Do you support it, or do you disagree with it?

If you disagree, then would you prefer Full-reserve Banking instead, or just a higher reserve ratio etc?

A significant part of the economic meltdown we had came as a result of the fractional reserve system. It started with the collapse of the mortgage system. Failed mortgages and stoppage of more mortgages led to a significant reduction of the money supply. When a mortgage is made, the money is deposited back into a bank which then fuels the fractional reserve money creation scenario. When a loan is not made it stops the money creation and no longer creates "checkbook money." This was the real crisis that called for a trillion dollars worth of deficit spending. When combined with the foreign trade deficit (which also drains the national money supply) we were in a situation could have sent us into a deflationary cycle and ultimately a depression.

The real problem comes when people call the banks and want their money. It's not really there.

[sandy whitelinger]

Originally Posted by Paul Rusco

P.S, if bank Reserves are fictional, then how can the banks print off new money and make loans? Doesn't there need to be a Fractional-Reserve Ratio which dictates that for every loan they create, they need a certain ratio of deposits vs new loan money?

Banks don't print money per se. They put it down on a ledger and this is counted as hard currency in money supply reports. Actual hard currency is printed by the treasury department. The Federal Reserve Bank's partitipation in this is explained in a rudimentary form here.

Banks are required by the Fed to keep a certain percentage (say 15%, I'm not sure of the exact amonunt but it's around that) of every deposit. Say $100 is deposited. $85 is loaned out. That $85 is ussualy only a marking in a computer system and is still "deposited" in the bank (Say a checking account). The bank then loans out 85% of that money again. This "creates" new money which is then deposited back in the bank and the cycle continues. The bank only keeps a very small fraction of the total loans in "reserve."

[Paul Rusco]

Originally Posted by sandy whitelinger

Banks don't print money per se. They put it down on a ledger and this is counted as hard currency in money supply reports. Actual hard currency is printed by the treasury department. The Federal Reserve Bank's partitipation in this is explained in a rudimentary form

Originally Posted by sandy whitelinger

here.

Banks are required by the Fed to keep a certain percentage (say 15%, I'm not sure of the exact amonunt but it's around that) of every deposit. Say $100 is deposited. $85 is loaned out. That $85 is ussualy only a marking in a computer system and is still "deposited" in the bank (Say a checking account). The bank then loans out 85% of that money again. This "creates" new money which is then deposited back in the bank and the cycle continues. The bank only keeps a very small fraction of the total loans in "reserve."

Oh right, I thought it was so that if you deposit say $100, the Bank can mutliply that amount by whatever the Reserve-ratio is, so if it was 5:1 they could "create" $500 with just $100 deposited - or something along those lines.