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Comment by pintxo | Hacker News Reader

> b) ... this means that if more people put money in the bank, the bank will have more money to lend out and interest rates would fall

This is not how lending works for banks in the western world. Banks do not lend out their customers savings.

Basically banks are legally allowed to create money out of thin air. They are only limited by their equity in how much money they can create as they have to reserve a certain amount of equity for each unit of created money.

https://en.wikipedia.org/wiki/Money_creation#Role_of_banks_i...

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They don’t lend out their customer’s savings directly per-se but you have to have deposits in order to have assets to lend against. Otherwise, why wouldn’t you be able to create a bank out of thin air and loan money? Customers cost money, why even have them?

I think what you missed in the article you linked is the concept of reserve requirements. What the person you’re responding to said is actually correct, again otherwise why wouldn’t a small regional bank be able to lend the same amount of money as JPMorgan Chase? The more deposits you have, the more you can lend.

looks like reserve requirements are currently 0% https://www.federalreserve.gov/monetarypolicy/reservereq.htm

Lending is tight to a banks equity. Prior to Basel II (early 2000s) this was some 8% per loan. So the more equity you have, the more loans you can provide. As small regional banks are unlikely to have the same amount of equity than JPMorgan Chase, they cannot provide the same amount of loans.

Under the followup regime (Basel III) its: https://en.wikipedia.org/wiki/Basel_III#Leverage_ratio

> Customers cost money, why even have them?

That certainly seems to match the customer service attitudes I've seen from many banks...

It's just as true to say that depositors create money or creditors create money. Perhaps more true to say that the FDIC creates money by insuring deposits.

The whole system creates money. And it's not some weird sort of stealing (unless a creditor defaults, of course), it's a lubricant and catalyst of economy, and why I don't have to maintain a herd of cows just for use in trading my computer software for your pickles. Money (currency) is only useful when it moves, so creating it is good for people.

Anyone can create money. If I write "IOU a chicken, redeemable by whoever holds this paper" on a sheet of paper, I just created money (but not US legal tender fiat currency)

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