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0 pointssyndacks5y ago0 comments

https://en.m.wikipedia.org/wiki/Fractional-reserve_banking

Banks do create money, by loaining other people's. I think you're saying the same thing?

0 comments

That's what he's saying. They do create money effectively by loaning out deposits, but that's far from literally creating money.

If they have a deficit on their sheets they can't just create money for themselves like a central bank could.

mason555y ago

> They do create money effectively by loaning out deposits

That's what we're taught in school but it's really backwards. They make loans that they think will be profitable and then figure out how to get the reserves needed to cover the balance sheet (either through issuing equity, drumming up more deposits, or borrowing in the overnight repo market).

https://www.investopedia.com/articles/investing/022416/why-b...

A good phrase to search for to learn more is "loans create deposits"

stu2b505y ago

Sure, their assets are somewhat fungible in both time and space so long as they meet liquidity regulations.

Regardless, the point is that they can't poof money for themselves like the Fed, or another central bank, can. They can increase the economy's supply of money effectively, but that is different from having direct power over monetary supply.

j / k navigate · click thread line to collapse

0 comments

stu2b505y ago

That's what he's saying. They do create money effectively by loaning out deposits, but that's far from literally creating money.

If they have a deficit on their sheets they can't just create money for themselves like a central bank could.

mason555y ago

> They do create money effectively by loaning out deposits

https://www.investopedia.com/articles/investing/022416/why-b...

A good phrase to search for to learn more is "loans create deposits"

stu2b505y ago

Sure, their assets are somewhat fungible in both time and space so long as they meet liquidity regulations.

j / k navigate · click thread line to collapse