Banking 8: Reserve Ratios
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- Опубліковано 20 вер 2024
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How reserve requirements limit how much lending a bank can do.
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Yes, and that's called deleveraging and it contracts the money supply. That's what happened and boosted the demand for the US dollar.
I have to say it would be less confusing if you could NOT displaying "gold" component here when trying to explain the concept of the reserve ratio. The part of gold treatment and how that ties to dispensing money into the economy should be a separate topic, as most banks these days are not using gold clips to calculate reserve ratio? But thanks for making this.
option 1:
It can lend money up to 10,000 dollars. So that total cash and lending ration comes to 10%. I think your video explains it this way.
option 2:
It has to keep 10% of 1000 dollars as reserve. That is 100 dollars. And it can lend 900 dollars as loan.
I hope you have understood my query. I think the option two is right. Can you explain?
From watching your videos I have come to the conclusion that the only things of real value is food... and my back breaking work that my boss pays me in worthless paper :(
I think I'm gonna start working for apples now since that has actual value.
@Luigi84289 "The form of debt involved in
banking accounts for a large
proportion of the money in most
industrialised nations (see
money, broad money, and
demand deposits for a discussion
of this). There is therefore a
relationship between inflation,
deflation, the money supply, and
debt." from en.wikipedia . org/Debt
@khanacademy
You said in this vid that Federal Reserve Ratio is 10%. Going back to vid 3 of this series, you say (paraphrasing) the bank's wealth exists in the fractional reserve system as long as investments boost the economy by a sufficient amount. So as far as I can see that means the economy of a society has to grow by (100-10% =) 90% in productivity for the banking system to stay solvent in terms of real wealth. Isn't that a hugely unrealistic risk?
Thank you.
Hi Sal,
I like your videos and come back to them often to learn and grasp the concepts.
What I am stuck at is this concept of Reserve Ratio. I have two concepts going on in my mind. Need some clarification.
Say a bank 'A' has cash with it (that includes demand deposits and time deposits) of about 1000 dollars. How much lending it can do on that day (moment!). Reserve requirement is 10%.
[See the rest in my 2nd comment as I am going over 500 characters]
@manilaenglish, But all we actually want to avoid is being on the hook for the liabilities of banks, which means we need only require them to remain fully insured. This suggests to me that our banking system isn't as important to regulate carefully as our insurance industry is. They'll be far better regulators of the financial services they cover than we could ever be. We need only avoid allowing the liabilities of insurers to grow beyond their cash equivalent assets.
Don't understand your concatenation where you get 71% from what is it 71% can you please explain?
THANKS love your courses
5 over 7= .71 or 71%
@IvanAndreevich You confuse "insolvency" with "illiquidity". The confidence in banks is justified because most people don't need their money at the same time - if they did, they would just keep it to themselves. By putting money into a checking account you are essentially making a bet that the collapse of the banking system (including FED protection) is less likely than, for example, having your gold stolen from your home. From a statistical perspective, that's quite a reasonable bet.
wait... at 5:05 why does the bank have to pay back a loan? I thought they were giving them out.
@LuqmanNaq As for the "system collapsing", the only thing I can see is hiccups caused by banks abandoning due dilligence (in mistaken hope of externalizing risks) and pumping money into many worthless projects over the past few years (housing bubble in US, mad EU subsidies for corrupt countries). It doesn't mean that really worthwhile projects don't exist, just that the incentives for funding them have been temporarily disabled, but as we see the system is smart enough to correct such idiocy.
I love those, especially bank notes of SAl Bank:D
@Luigi84289 Yeah, I believe it's called inflation... Salaries today are also much higher than in 1913.
Your money's in Bill's house, and Fred's house.
What's my money doing in your house! POW!
ok, true but if you have to re-explain what the man says then where does that lead? If one cant understand 10, dont try to explain 100.... i find what he stated 100% clear and shouldnt be overlooked or restated... it was precise and accurate...dont try to change his words becuase someone doesnt understand why the difference between represented value is and actual value
Why should there be confidence in a system that is ALWAYS insolvent at any given moment in time? I don't see how having $ in the future is being solvent today.
@clray123 "unless your standpoint is that there are absolutely no worthwhile projects left to be done in this big world" If businesses, gov's, individuals and banks are simultaneously encumbered with too much debt, assets depreciating and begin deleveraging then credit contracts. It begins a deflationary collapse (that's what happened in '08). What's keeping things limping along is the trillions that have been pumped into the global system but that too will fail. Also cheap oil is gone
Gold is an illusion of wealth, it is not wealth in of itself.
@clray123 Fair enough. I know the difference, I misspoke.
too many colours
never stated it was 80% of customers. he states 80% of value being removed. he states the reserve ratio is gold over demand. not gold over customers. it doesnt matter if 1 person comes or 9000... its based on demand. which he clearly states. Im not sure why you think he means customers. in his fake situation, you see person a respresents x value which is why he states customers. but he is referring to the value behind that individual
@manilaenglish Even money comes from debt dude.. think of it.. our loan is shown as an asset to someone and will be given loan... so on..
This stuff is been happening over here in 2023, SVB anyone?
@clray123 There was only so long we could base our economic system on the constant expansion of debt before it began to collapse and we reached that point in '07-'08. To stubbornly defend a collapsing system is irrational. How is a economic/monetary system based on exponential growth in a finite world sustainable? How can you defend a system that requires the constant expansion of debt to remain solvent? A steady state economy is the only rational system. /watch?v=Q5dDQQ76zTc
Instead of 500/700 shouldnt it be 200/400?? Since the bank doesnt have the 300 they already gave to C????
its not a ten fold increase.... 2 fold is 10 x's 10= 100 3 fold is 10x10x10 10 fold is 10 x10, ten times...
The word is getting out. :8:)
In reality the growth should be 10 ->> 100 = 1000%
because you start from 10 and you should arrive to 100, that meens 10fold increase :)!
long live GDP growth......
A Stone Warrent
no if u printed too much money than the gold u got then money would be useless everything will rise and the country will fall
Ha-Ha-Ha-Ha-HA!
The question here *is not* "how much they can lend w/o real backing assets?".
The real question is "Why can they lend w/o real backing assets?".
And the answer is because they got used to having the real assets in the "vault",
and could not accept that there are real assets in the world, not represented in their "vaults"!!!!
So, they mortgage in advance, all the wealth in the real world, as if its natural destination is in their "vaults"!!!
That's just the tail of banker's greed!
well,,, the world is fucked
@khanacademy
You said in this vid that Federal Reserve Ratio is 10%. Going back to vid 3 of this series, you say (paraphrasing) the bank's wealth exists in the fractional reserve system as long as investments boost the economy by a sufficient amount. So as far as I can see that means the economy of a society has to grow by (100-10% =) 90% in productivity for the banking system to stay solvent in terms of real wealth. Isn't that a hugely unrealistic risk?