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Comment by nullish_signal | Hacker News Reader

80% now, 20% months later? Reminds me of Fractional Reserve Banking, where USA federal banks could invest 90% of deposited money, leaving only 10% of your savings "in savings".

I just looked it up, and this seems to have dropped from 10% to 0% on March 15,2020, which "eliminated reserve requirements for all depository institutions" https://www.federalreserve.gov/monetarypolicy/reservereq.htm

Perhaps this explains the problems people have been having with Bank of America and being unable to withdrawal their money/paychecks. The money is no longer at the bank!

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This really is nothing to do with and nothing like fractional reserve banking, and fractional reserve banking really is nothing like how it is frequently described on the internet in breathless tones. For people who are genuinely serious about understanding capital requirements for banks, I strongly recommend reading the Basel framework[1]. It’s not going to set your pulse racing but at least you won’t be recycling some “explanation” that has been made up by someone who doesn’t understand it themselves. And in point of fact as a sibling comment has pointed out, eliminating reserve requirements for deposits doesn’t eliminate capital requirements, which banks still have and are still in place.

[1] https://www.bis.org/basel_framework/index.htm

Do yourself a favour and learn about how banks actually work: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

Is there an easy way to understand how the lack of a reserve requirement doesn't turn banks into infinite money machines?

Edit: Perhaps banks are infinite money machines, but what consequences do banks face that prevent them from writing blank checks?

Consequences? Those are for Plebeians, since the Federal Reserve can just print more money.

From 2020: "Inflation Baked In As U.S. Money Supply Explodes" https://www.forbes.com/sites/investor/2020/06/26/inflation-b...

"A 33% increase in M1 (the most liquid portions of the money supply) in the last 12 months. A 105% increase (if you annualize it) in the last three months to May. You’d say that’s a 33% inflation rate baked in, right now."

They have eliminated reserve requirement, but there still are capital requirements.

That thinking is based on the thesis that deposits create loans. However, it is the other way: loans create deposits.

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