Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (11799)	12/12/2001 9:14:19 PM
From: LLCF	Read Replies (1) \| Respond to of 74559

If a bank takes all it's depositors money @ 1% and invests it in overnight "federal funds market" @ 1.5% it has no risk and makes quite a profit. This is a simple model of a bank that has 100% of it's loans backed by assets. No money has been created by the bank. In reality the bank being very large could loan a portion of this money out for different terms, etc.. because they know everyone won't come in the same day and want money. Even if they did, they could sell or borrow against their longer term securities. In addition of course they can loan out their own capital. This is infinitely more 'conservative' than what goes on now [many different 'tiers' of capital, some at the fed. etc] where fractional reserves allow money creation. Under your definition there would clearly be no banks. DAK

To: Ilaine who wrote (11799)	12/12/2001 11:06:09 PM
From: smolejv@gmx.net	Read Replies (2) \| Respond to of 74559

hold it, why dragging these unreal 100% number into the discussion? The requirements of the law regarding the reserves are pretty clear. I dont know the exact numbers myself (they're actually one of the few handles the central bank has on financial sector) but anyhow it is closer to 10 than to 100 percent - anybody here with real numbers? -. So, discussing the case of 100% reserves required is fine - for a fresman course on "let me start you on banking". It shows fast, there's no banks with 100% reserve requirement. Just the deposit boxes, as DAK pointed out.