Re:Money creation in the modern economy (2014) [pdf]
by kgwgk on Friday September 10, 2021 @08:45AM
(#28480721)
Fine, as I said I agree that "if a bank has $1 million in deposits the bank can make $9 million in loans as long as the loans remain as deposits in the bank". But that has little interest.
As for the other question, it's clear from the beginning that things can be said about the banking system that are not necessarily true for any individual bank. That paper says as much "Figure 1 showed how, for the aggregate banking sector, loans are initially created with matching deposits. But that does not mean that any given individual bank can freely lend and create money without limit."
So long!
The whole premise of the paper seems to be that this way of thinking is backwards (in terms of the order and causality of events) and not really relevant to modern banking.
Another toy example - there are two banks in the banking system with 1m deposits and reserves, and they are let loose making loans at the same time. Why would they only create 900k of loans? The situation is symmetrical, they can expect the net reserve transfer between them to be small if they make similar amounts of loans. In what way is the 10% reserve requirement limiting them to making 900k of loans in this scenario?