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Politics : Welcome to Slider's Dugout -- Ignore unavailable to you. Want to Upgrade?

To: maxncompany who wrote (9117)	4/10/2008 11:05:50 AM
From: Fiscally Conservative	Respond to of 50767

I'm not sure I understand the significance. The fact that banks are required to keep on hand only a fraction of the funds deposited with them is a function of the banking business. Banks borrow funds from their depositors and in turn lend those funds to the banks’ borrowers (those in need of funds). Banks make money by charging borrowers more for a loan (a higher percentage interest rate) than is paid to depositors for use of their money. If banks did not lend out their available funds after meeting their reserve requirements, depositors might have to pay banks to provide safekeeping services for their money. For the economy and the banking system as a whole, the practice of keeping only a fraction of deposits on hand has an important cumulative effect; referred to as the fractional reserve system, it permits the banking system to “create” money. Nothing new here,imo.