The Fed Workbook - How to make 'money' out of... well, nothing really

Banks could still make loans without fractional reserve banking - however they would have to match the length of loan terms to deposits. Eg if they write a 5 year loan they would have to match that up with a 5 year duration source of funding. Eg term deposits.

At call funds they could not lend out so they would have to charge fees to hold the funds.
 
Dwayne said:
Banks could still make loans without fractional reserve banking - however they would have to match the length of loan terms to deposits. Eg if they write a 5 year loan they would have to match that up with a 5 year duration source of funding. Eg term deposits.

At call funds they could not lend out so they would have to charge fees to hold the funds.
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That is what banks try to do on aggregate, as its almost impossible to exactly match a 5yr loan with a 5yr deposit/bond of the same maturity. Also the economies of scale in funding markets make issuing anything less than 100mio in funding uneconomical.

Btw, the minimum reserve ratio is set by the Basel guidelines and Aus banks have something around 10% as a reserve in Level 1 capital (cash, government and state bonds)
 
hyperinflation said:
Dwayne said:
Banks could still make loans without fractional reserve banking - however they would have to match the length of loan terms to deposits. Eg if they write a 5 year loan they would have to match that up with a 5 year duration source of funding. Eg term deposits.

At call funds they could not lend out so they would have to charge fees to hold the funds.
Click to expand...


That is what banks try to do on aggregate, as its almost impossible to exactly match a 5yr loan with a 5yr deposit/bond of the same maturity. Also the economies of scale in funding markets make issuing anything less than 100mio in funding uneconomical.

Btw, the minimum reserve ratio is set by the Basel guidelines and Aus banks have something around 10% as a reserve in Level 1 capital (cash, government and state bonds)
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Maybe that's what banks do in theory, but in practice they make lots of long term loans and fund them with short term borrowings on the international money market, or alternatively with at-call deposits. That is, quite simply, a recipe for disaster if funding sources dry up for any length of time.
 
Wout said:
jparrie said:
Wout said:
I think the problem is that banks keep their reserve ratios secret
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No they don't because there is no reserve ratio here.
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how did you come to that information?
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Errr, well, it's a fact. In Australia there is no reserve requirement. None, nada, zilch, zip. I learned that years ago, don't know where. Probably when I did my finance degree.
 
fishball said:
jparrie said:
Errr, well, it's a fact. In Australia there is no reserve requirement. None, nada, zilch, zip. I learned that years ago, don't know where. Probably when I did my finance degree.
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Yeah you are correct, here is wikipedia link.

https://secure.wikimedia.org/wikipedia/en/wiki/Reserve_requirement#Other_countries

APRA (Australia) uses regulatory capital to ensure liquidity among other things, not reserve requirement.
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Which functionally is one and the same - regulatory capital is capital that can be liquidated instantly in order to pay liabilities when normal sources of funding dry up.

Regulatory capital as a % of total assets, is very similar to having a % of deposits not lent out.. Since all loans a bank makes are assets, the amount of money not lent out is an asset too.
 
systematic said:
physical bank notes are printed and have no intrinsic value
would you like to photocopy them and pass them around?
because there really isnt that much difference as long as the "bank" does it ...
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Exactly... besides... banks issue CURRENCY, not MONEY...

CURRENCY is the (now) worthless instrument which used to represent MONEY

CREDIT should only be derived from MONEY, not CURRENCY, hence the issuance of CREDIT to which you're referring is (nowadays given the contrived disconnect from MONEY by the crooksters) intrinsically fraudulent...

But hey - WHO CARES?!?!

It's the substitution (ie theft) of real MONEY from a system replaced with the illusion or perceived value in a CURRENCY presented as either CREDIT or DEBT... depending on whether you're lending or taking on a loan. This is apparent even now when you see a 'flight from risk' and everyone piles into the US$... it's absolutely BARMY ARMY territory...

:D x
 
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