Re:Americans still think they can make money flipping houses
by Retric on Saturday July 09, 2022 @10:36AM
(#32035487)
Reserve requirements are only a question of deposits, but they limit everything from paying expenses to dividends from the exact same pool of money used to issues loans. Which is critical to understand because banks don't just offer loans they also use money for everything else normal business do.
On the other hand, if they didn't need cash on hand to offer loans any random small bank could loan a 1 trillion dollars to someone. They can't because they don't actually have that money.
Consider a bank with 3 billion dollars total and 2 billion in deposits. They only need to care about reserve requirements on 2 billion and can use the other 1 billion for anything because it's their money. In effect cash on hand are assets and deposits are debt. Reserve requirements are just a question of how much leverage they can legally have.
On the other hand, if they didn't need cash on hand to offer loans any random small bank could loan a 1 trillion dollars to someone. They can't because they don't actually have that money.
Consider a bank with 3 billion dollars total and 2 billion in deposits. They only need to care about reserve requirements on 2 billion and can use the other 1 billion for anything because it's their money. In effect cash on hand are assets and deposits are debt. Reserve requirements are just a question of how much leverage they can legally have.