> who'll be the depositors putting cash in the bank to be loaned

Loans create deposits, not the other way.

Increasing the need for reserves, which banks acquire usually via deposits.

But not increasing it as fast as the loans increase, hence, fractional reserve.

If the fraction was to stay constant deposits would increase as fast as loans.

In fact the problem of the US banking system in the last years has been that deposits have been increasing much faster than loans.

> If the fraction was to stay constant deposits would increase as fast as loans.

In relative terms yes, in absolute terms, they'd be lower.

> the problem of the US banking system in the last years has been that deposits have been increasing much faster than loans

Yes, it seems to be. "Too much money chasing too few returns", as they say.

> In relative terms yes, in absolute terms, they'd be lower.

Not really. The Loan-to-Deposit ratio is usually lower than one so if both double that means that deposits grow more than loans in absolute terms.

Yeah, that's my misuse of the term "deposit" where I meant something like "total reserve amount".

But not increasing it as fast as the loans increase.

Loans are not made from deposits even now. But you may well be right that there are operational details that make my idea impossible, I don't know. HN seems to have some people with understanding of corporate finance, so hopefully they'll be able to educate me.

> Loans are not made from deposits even now.

But banks have more deposits than loans even now. Because they need to get money from somewhere.

No they don't, because the banking system is fractional reserve. Pretty much every bank has more outstanding loans that deposits (even if part of those loans is to the government).

Can you point to a bank with more loans than deposits in its balance sheet?

(Honest question, I'm curious.)

As far as I can see the banking system in aggregate has more deposits than loans:

https://www.federalreserve.gov/releases/h8/current/default.h...

Thanks, I think there's something faulty in my understanding of terminology. By "deposits" I was understanding "deposits backed by holdings at the central bank".

The original question I was trying to answer was "If everyone gets cash from loans, who'll be the depositors putting cash in the bank to be loaned?". I just don't think that question is well-posed. A bank creating a loan requires new cash deposits of only R x loan_amount, where R is the reserve requirement. For making payroll this ought to be almost nothing.

> By "deposits" I was understanding "deposits backed by holdings at the central bank".

Ok. That would be reserves. But it's not like some deposits are backed and others are not (leaving aside the existence of different kinds of deposits) - what you have is a total amount of deposits and a total amount of reserves.

Yes, I understand that. But I don't understand why we couldn't have a system whereby, to cover payroll, a bank creates a loan to each company every payroll day, transfers cash to the (FDIC insured) bank accounts of employees, and then liquidates some of the company's T-Bills over the next couple of hours or days to cover it. That seems like a way of making sure everyone's paid without companies having to risk > $250k balances at any time.

I think there are a variety of products reducing cash risk to zero. Something like t-bill positions for overdraft protection might be one such.

But notice that it's not in the bank's interest to provide them or push them if they do. They would rather you trust them and provide them the cheap float.

Yeah, this seems to be what I'm learning from https://twitter.com/WallStCynic/status/1634901599423197191

Perhaps some near-fraudulent collusion between SVB, VCs and the executives of the banked startups then ...

I think the story of the relationships between SVB and the VCs would be fascinating.

Less so the executives, who probably did largely as their investors advise. Their individual business probably isn't that important on its own.

It's the VC partner who sees to it that 10 portfolio companies a year drop their capital raise into cheap deposits who really mattered.

That thread seems to be insinuating that startup executives were offered mortgages in return for keeping their treasury as deposits in SVB. If so that sounds like a massive violation of fiduciary duty. (I don't have any concrete evidence of this and I'm just going by one Twitter thread I've read, so take with a mountain of salt.)

i don't think it's as nefarious as that

the issue is that startup founders might have a lot of implied wealth based on the equity they hold and money raised but a "mainstream" bank is going to look at that equity, assess it as non-liquid and highly speculative and reject any loan applications

svb was more likely to extend personal loans to startup founders because -- in theory at least -- they better understood startup finance and they were incentivized to provide good service to prospective customers of their more business focused activities

Yes, that makes sense. Perhaps I was too cynical.