From the investopedia page: If bank lending is constrained by anything at all, it is capital requirements, not reserve requirements; however, since capital requirements are specified as a ratio whose denominator consists of risk-weighted assets (RWAs), they are dependent on how risk is measured, which in turn is dependent on the subjective human judgment.
https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp
In: 0
In a fractional reserve system, the government says “for every 10 bucks you have lent out, you have to have a dollar in cash”. So you’d think if you deposit a dollar, then the bank can lend out 10 bucks, right?
Nope. The bank can lend out infinity dollars, and worry about the cash later. After all, they can just borrow it from another bank if they can’t get people to deposit it.
A capital requirements system dictates a ratio of capital to debt instead of cash to debt. Capital is money that *belongs to you*. You can’t borrow money to make up capital, because your debt goes up too.
Latest Answers