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To: LLCF who wrote (11807)	12/13/2001 2:12:41 AM
From: Moominoid	Read Replies (3) \| Respond to of 74559

How could that happen?? In my example the bank can only lend out deposits and it's capital [one time]... the way it works today is that depending on the defenition of capital [one of the tiers can even be borrowed I believe] the bank can lend out many times it's capital... THAT's how money supply accelerates no? A bank can lend many times its capital in terms of net assets, but that's not the key issue here. If every bank lends out just what it receives in deposits minus a reserve requirement, the banking system as a whole works through a multiplier effect to increase the total money supply to a multiple of the money injected into the system by the Central Bank. In the basic theory the Central Bank can get a control over this multiplier effect by setting the reserve requirement. If it went to 100% only the Central Bank could lend and all other banks would in effect cease to exist.