Central Banks Don't Create Money.

[Pksimon2007]

- No. It's explained above.

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.

No. It's explained above.

Yeah, I'm still chuckling.

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits

New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?

- How did they get $10 million in deposits?

- They have no reserve requirement at $10 million. They are in the zero tranche.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.

If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.

So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Fed is not "holding $10M" FROM anything. The Fed gave those reserves to the bank by putting them in their reserve account. The reserves are a completely separate thing from the deposit. They are related because reserves are used to keep score when banks accept deposits and have checks clear that are drawn on their accounts.

But the two kinds of money are not exchanged. Bank deposits never become central bank reserves or vice versa.

 

[Toddsterpatriot]

No. It's explained above.

Yeah, I'm still chuckling.

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits

New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?

- How did they get $10 million in deposits?

- They have no reserve requirement at $10 million. They are in the zero tranche.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.

If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.

So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- Did you not read the OP?

If you accept a check as a deposit, that becomes a liability for you, the bank.

The bank on which it was drawn has to lose an asset, because they have to honor the check which was drawn on one of their accounts.

The Fed takes reserves out of their reserve account.

The Fed puts them in yours.

That's how the banking system keeps score, to simulate transfers of money between depositors when they write checks to each other.

When the bank accepts the deposit, the Fed gives the bank reserves in the amount of the deposit.

Did you not read the OP?

I did.

The Fed takes reserves out of their reserve account.

That's how it works now. Your idea was that banks would never touch their reserves.

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits

Now you're saying my deposits impacted my bank's, and at least one other bank's, reserve balance at the Fed.

- Of course the transfer of the check impacts reserve balances, just like the movement of a real ship in the South Pacific causes the admiral's lackey to move the little wooden ship around on the map.

The point is that the commander in the South Pacific can't call back to CINCPAC and say "hey, I need another ship. Send me one of those little wooden ones your lackey pushes around. That'll scare the f**k out of the Japanese Navy".

Of course the transfer of the check impacts reserve balances

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits

Your statements are in conflict.

 

[Toddsterpatriot]

No. It's explained above.

Yeah, I'm still chuckling.

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits

New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?

- How did they get $10 million in deposits?

- They have no reserve requirement at $10 million. They are in the zero tranche.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.

If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.

So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- Those reserves are not a subtraction from the deposit the bank received.

When a bank accepts a check deposit for $100, it creates a deposit balance (a bank liability) for the customer of $100.

It also receives a balance in its reserve account (an asset) of $100 from the Fed.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything. Those reserves aren't subtracted from the deposit. They are the asset which the bank receives for accepting the deposit.

Those reserves are not a subtraction from the deposit the bank received.

The bank has $9 million available to lend. $1 million it cannot lend.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything.

Where did I say the bank had to do anything?

 

[Toddsterpatriot]

No. It's explained above.

Yeah, I'm still chuckling.

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits

New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?

- How did they get $10 million in deposits?

- They have no reserve requirement at $10 million. They are in the zero tranche.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.

If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.

So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Fed is not "holding $10M" FROM anything. The Fed gave those reserves to the bank by putting them in their reserve account. The reserves are a completely separate thing from the deposit. They are related because reserves are used to keep score when banks accept deposits and have checks clear that are drawn on their accounts.

But the two kinds of money are not exchanged. Bank deposits never become central bank reserves or vice versa.

But the two kinds of money are not exchanged.

You are mistaken.

 

[Pksimon2007]

- No. It's explained above.

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.

No. It's explained above.

Yeah, I'm still chuckling.

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits

New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?

- How did they get $10 million in deposits?

- They have no reserve requirement at $10 million. They are in the zero tranche.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.

If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.

So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- There's one think you probably intuitively understand but I want to make clear.

Cash is one of the things that banks can buy from the Fed with reserves. That's how cash is distributed - the Treasury "lends" it to the Fed (which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation), who sells it to banks in exchange for reserves.

Sales of cash are controlled to customer needs - refilling ATMs, basically - to what are called "existing obligations".

 

[Toddsterpatriot]

No. It's explained above.

Yeah, I'm still chuckling.

There is no exchange between any bank and the Fed, between bank deposits and central bank deposits

New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?

- How did they get $10 million in deposits?

- They have no reserve requirement at $10 million. They are in the zero tranche.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.

If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.

So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- There's one think you probably intuitively understand but I want to make clear.

Cash is one of the things that banks can buy from the Fed with reserves. That's how cash is distributed - the Treasury "lends" it to the Fed (which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation), who sells it to banks in exchange for reserves.

Sales of cash are controlled to customer needs - refilling ATMs, basically - to what are called "existing obligations".

That's how cash is distributed - the Treasury "lends" it to the Fed

The Treasury doesn't lend it to the Fed or "lend" it to the Fed. Sorry.

(which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation),

That's funny. At what "interest rate" are the FRNs "lent" out?

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

 

[Pksimon2007]

- How did they get $10 million in deposits?

- They have no reserve requirement at $10 million. They are in the zero tranche.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.

If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.

So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- Those reserves are not a subtraction from the deposit the bank received.

When a bank accepts a check deposit for $100, it creates a deposit balance (a bank liability) for the customer of $100.

It also receives a balance in its reserve account (an asset) of $100 from the Fed.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything. Those reserves aren't subtracted from the deposit. They are the asset which the bank receives for accepting the deposit.

Those reserves are not a subtraction from the deposit the bank received.

The bank has $9 million available to lend. $1 million it cannot lend.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything.

Where did I say the bank had to do anything?

- That's incorrect.

Those deposits can't be loaned out at all. Deposits are a liability. They are not an asset which can be given to anyone to use.

Banks can't lend out the central bank's reserves.

Reserve requirements are not restrictions on lending at all.

I explained what reserve requirements do in my third post under the OP.

The net lending capability that the bank received because of these deposits is zero.

 

[Pksimon2007]

- How did they get $10 million in deposits?

- They have no reserve requirement at $10 million. They are in the zero tranche.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.

If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.

So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Fed is not "holding $10M" FROM anything. The Fed gave those reserves to the bank by putting them in their reserve account. The reserves are a completely separate thing from the deposit. They are related because reserves are used to keep score when banks accept deposits and have checks clear that are drawn on their accounts.

But the two kinds of money are not exchanged. Bank deposits never become central bank reserves or vice versa.

But the two kinds of money are not exchanged.

You are mistaken.

- No, Todd, I'm not.

Your bank account is a bank liability. It is money to you, it is not money to the bank.

It is worth nothing to anyone. A bank "using a deposit" to lend would be like me asking if you wanted to take over my house payment and paying me interest for the privilege of doing so.

Reserves are liabilities of the central bank. They are completely different from the liabilities of your bank, which you call money. The Fed has no use for a bank deposit at a commercial bank. It's a liability of the commercial bank. It has no value to the Fed.

It will not exchange it for anything.

 

[Toddsterpatriot]

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- Those reserves are not a subtraction from the deposit the bank received.

When a bank accepts a check deposit for $100, it creates a deposit balance (a bank liability) for the customer of $100.

It also receives a balance in its reserve account (an asset) of $100 from the Fed.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything. Those reserves aren't subtracted from the deposit. They are the asset which the bank receives for accepting the deposit.

Those reserves are not a subtraction from the deposit the bank received.

The bank has $9 million available to lend. $1 million it cannot lend.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything.

Where did I say the bank had to do anything?

- That's incorrect.

Those deposits can't be loaned out at all. Deposits are a liability. They are not an asset which can be given to anyone to use.

Banks can't lend out the central bank's reserves.

Reserve requirements are not restrictions on lending at all.

I explained what reserve requirements do in my third post under the OP.

The net lending capability that the bank received because of these deposits is zero.

Those deposits can't be loaned out at all.

Sure they can.

Banks can't lend out the central bank's reserves.

It happens every day.

The net lending capability that the bank received because of these deposits is zero.

I took in $10 million in deposits and I can lend out $0?
Man, I'd return that book you're reading. Lots of bad info.

 

[Pksimon2007]

- How did they get $10 million in deposits?

- They have no reserve requirement at $10 million. They are in the zero tranche.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.

If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.

So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- There's one think you probably intuitively understand but I want to make clear.

Cash is one of the things that banks can buy from the Fed with reserves. That's how cash is distributed - the Treasury "lends" it to the Fed (which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation), who sells it to banks in exchange for reserves.

Sales of cash are controlled to customer needs - refilling ATMs, basically - to what are called "existing obligations".

That's how cash is distributed - the Treasury "lends" it to the Fed

The Treasury doesn't lend it to the Fed or "lend" it to the Fed. Sorry.

(which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation),

That's funny. At what "interest rate" are the FRNs "lent" out?

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Treasury absolutely does lend FRNs to the Fed. It prints them and let's the Fed use them. The Fed's ability to print bank notes was stripped from it in 1921 - almost a century ago.

Interest rate? "Every penny of the Fed's profits" is the interest rate.

 

[Toddsterpatriot]

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Fed is not "holding $10M" FROM anything. The Fed gave those reserves to the bank by putting them in their reserve account. The reserves are a completely separate thing from the deposit. They are related because reserves are used to keep score when banks accept deposits and have checks clear that are drawn on their accounts.

But the two kinds of money are not exchanged. Bank deposits never become central bank reserves or vice versa.

But the two kinds of money are not exchanged.

You are mistaken.

- No, Todd, I'm not.

Your bank account is a bank liability. It is money to you, it is not money to the bank.

It is worth nothing to anyone. A bank "using a deposit" to lend would be like me asking if you wanted to take over my house payment and paying me interest for the privilege of doing so.

Reserves are liabilities of the central bank. They are completely different from the liabilities of your bank, which you call money. The Fed has no use for a bank deposit at a commercial bank. It's a liability of the commercial bank. It has no value to the Fed.

It will not exchange it for anything.

Your bank account is a bank liability. It is money to you, it is not money to the bank.
It is worth nothing to anyone.

You said it is money to me then you said it is worth nothing to anyone.
Are you smoking some herb?

 

[Toddsterpatriot]

How did they get $10 million in deposits?


These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.


They have no reserve requirement at $10 million. They are in the zero tranche.

My mistake, it was $100 million in deposits.

But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.

Receive reserves? What does that mean? Who gives them these reserves?

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- There's one think you probably intuitively understand but I want to make clear.

Cash is one of the things that banks can buy from the Fed with reserves. That's how cash is distributed - the Treasury "lends" it to the Fed (which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation), who sells it to banks in exchange for reserves.

Sales of cash are controlled to customer needs - refilling ATMs, basically - to what are called "existing obligations".

That's how cash is distributed - the Treasury "lends" it to the Fed

The Treasury doesn't lend it to the Fed or "lend" it to the Fed. Sorry.

(which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation),

That's funny. At what "interest rate" are the FRNs "lent" out?

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Treasury absolutely does lend FRNs to the Fed. It prints them and let's the Fed use them. The Fed's ability to print bank notes was stripped from it in 1921 - almost a century ago.

Interest rate? "Every penny of the Fed's profits" is the interest rate.

The Treasury absolutely does lend FRNs to the Fed.

No it doesn't. The Fed buys them from the BEP. Buy, not borrow.

 

[Pksimon2007]

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- Those reserves are not a subtraction from the deposit the bank received.

When a bank accepts a check deposit for $100, it creates a deposit balance (a bank liability) for the customer of $100.

It also receives a balance in its reserve account (an asset) of $100 from the Fed.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything. Those reserves aren't subtracted from the deposit. They are the asset which the bank receives for accepting the deposit.

Those reserves are not a subtraction from the deposit the bank received.

The bank has $9 million available to lend. $1 million it cannot lend.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything.

Where did I say the bank had to do anything?

- That's incorrect.

Those deposits can't be loaned out at all. Deposits are a liability. They are not an asset which can be given to anyone to use.

Banks can't lend out the central bank's reserves.

Reserve requirements are not restrictions on lending at all.

I explained what reserve requirements do in my third post under the OP.

The net lending capability that the bank received because of these deposits is zero.

Those deposits can't be loaned out at all.

Sure they can.

Banks can't lend out the central bank's reserves.

It happens every day.

The net lending capability that the bank received because of these deposits is zero.

I took in $10 million in deposits and I can lend out $0?
Man, I'd return that book you're reading. Lots of bad info.

- Todd, you're getting your information from blogs or somewhere.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.

It doesn't exist, because it makes no sense.

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf. There is no tangible money in a bank deposit. A bank deposit is an IOU of a bank, just like a mortgage is an IOU to a bank.

A mortgage is my liability. Can I lend my mortgage to you? Will you pay me interest to borrow my promise to pay a bank money?

If you're willing to do that, we should talk.

 

[Pksimon2007]

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Fed is not "holding $10M" FROM anything. The Fed gave those reserves to the bank by putting them in their reserve account. The reserves are a completely separate thing from the deposit. They are related because reserves are used to keep score when banks accept deposits and have checks clear that are drawn on their accounts.

But the two kinds of money are not exchanged. Bank deposits never become central bank reserves or vice versa.

But the two kinds of money are not exchanged.

You are mistaken.

- No, Todd, I'm not.

Your bank account is a bank liability. It is money to you, it is not money to the bank.

It is worth nothing to anyone. A bank "using a deposit" to lend would be like me asking if you wanted to take over my house payment and paying me interest for the privilege of doing so.

Reserves are liabilities of the central bank. They are completely different from the liabilities of your bank, which you call money. The Fed has no use for a bank deposit at a commercial bank. It's a liability of the commercial bank. It has no value to the Fed.

It will not exchange it for anything.

Your bank account is a bank liability. It is money to you, it is not money to the bank.
It is worth nothing to anyone.

You said it is money to me then you said it is worth nothing to anyone.
Are you smoking some herb?

- It's money to you.

The bank can't lend your deposit, which would require actually reducing your deposit balance and giving it to somebody else.

How would you ever get your money out of your bank account if they did that?

Your bank balance is your record that the bank owes you money. If they actually reduced your bank balance to create a deposit for a borrower, the record of their debt to you would be gone. You would have lost your claim to the balance in your bank account forever. It's nonsense. Banks don't lend deposits.

 

[Pksimon2007]

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- There's one think you probably intuitively understand but I want to make clear.

Cash is one of the things that banks can buy from the Fed with reserves. That's how cash is distributed - the Treasury "lends" it to the Fed (which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation), who sells it to banks in exchange for reserves.

Sales of cash are controlled to customer needs - refilling ATMs, basically - to what are called "existing obligations".

That's how cash is distributed - the Treasury "lends" it to the Fed

The Treasury doesn't lend it to the Fed or "lend" it to the Fed. Sorry.

(which is the "reason" the Fed gives all its profits to the Treasury - as "interest" on the Federal Reserve Notes it has "borrowed" from the Treasury and put into circulation),

That's funny. At what "interest rate" are the FRNs "lent" out?

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Treasury absolutely does lend FRNs to the Fed. It prints them and let's the Fed use them. The Fed's ability to print bank notes was stripped from it in 1921 - almost a century ago.

Interest rate? "Every penny of the Fed's profits" is the interest rate.

The Treasury absolutely does lend FRNs to the Fed.

No it doesn't. The Fed buys them from the BEP. Buy, not borrow.

Sorry, you're just wrong. Look at the Fed's consolidated financial statements. On the income statement, they make a note to explain their "remittance to the Treasury" - that it is "interest" on all Federal Reserve Notes in circulation, which the Fed theoretically "borrows" from the Treasury. It does not buy them.

 

[Pksimon2007]

- It doesn't sound like you read my posts.

There's a lot of information there, presented simply.

It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.

If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.

Reserves serve no reserve function.

They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.

They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.

If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.

They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.

They're nothing more than that.

The term reserve is an archaic one, which represented something completely different in commodity money systems.

In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Fed is not "holding $10M" FROM anything. The Fed gave those reserves to the bank by putting them in their reserve account. The reserves are a completely separate thing from the deposit. They are related because reserves are used to keep score when banks accept deposits and have checks clear that are drawn on their accounts.

But the two kinds of money are not exchanged. Bank deposits never become central bank reserves or vice versa.

But the two kinds of money are not exchanged.

You are mistaken.

- No, Todd, I'm not.

Your bank account is a bank liability. It is money to you, it is not money to the bank.

It is worth nothing to anyone. A bank "using a deposit" to lend would be like me asking if you wanted to take over my house payment and paying me interest for the privilege of doing so.

Reserves are liabilities of the central bank. They are completely different from the liabilities of your bank, which you call money. The Fed has no use for a bank deposit at a commercial bank. It's a liability of the commercial bank. It has no value to the Fed.

It will not exchange it for anything.

Your bank account is a bank liability. It is money to you, it is not money to the bank.
It is worth nothing to anyone.

You said it is money to me then you said it is worth nothing to anyone.
Are you smoking some herb?

- Here's how banks create loans. They do it through balance sheet expansion.

They create an asset called a "Loan Recievable". They create a deposit (a liability) for the borrower.

That's how it's done. Every bank loan is an act of money creation. They create a bank deposit, which is money to the borrower.

The borrower then spends that money on a car or something, and his deposit disappears, replaced by a deposit balance in the account of the car seller.

Every time the borrower makes a payment on the loan, his deposit balance is reduced - that destroys money. At the same time, the Loan Receivable asset is amortized.

Every dollar paid in principal destroys money. When the loan is completely repaid, the money created by the loan is completely destroyed.

The bank has received interest payments, which are an asset to them. That is not newly created money, but existing money which the borrower had to earn and give to the bank as payment for the loan.

 

[Toddsterpatriot]

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- Those reserves are not a subtraction from the deposit the bank received.

When a bank accepts a check deposit for $100, it creates a deposit balance (a bank liability) for the customer of $100.

It also receives a balance in its reserve account (an asset) of $100 from the Fed.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything. Those reserves aren't subtracted from the deposit. They are the asset which the bank receives for accepting the deposit.

Those reserves are not a subtraction from the deposit the bank received.

The bank has $9 million available to lend. $1 million it cannot lend.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything.

Where did I say the bank had to do anything?

- That's incorrect.

Those deposits can't be loaned out at all. Deposits are a liability. They are not an asset which can be given to anyone to use.

Banks can't lend out the central bank's reserves.

Reserve requirements are not restrictions on lending at all.

I explained what reserve requirements do in my third post under the OP.

The net lending capability that the bank received because of these deposits is zero.

Those deposits can't be loaned out at all.

Sure they can.

Banks can't lend out the central bank's reserves.

It happens every day.

The net lending capability that the bank received because of these deposits is zero.

I took in $10 million in deposits and I can lend out $0?
Man, I'd return that book you're reading. Lots of bad info.

- Todd, you're getting your information from blogs or somewhere.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.

It doesn't exist, because it makes no sense.

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf. There is no tangible money in a bank deposit. A bank deposit is an IOU of a bank, just like a mortgage is an IOU to a bank.

A mortgage is my liability. Can I lend my mortgage to you? Will you pay me interest to borrow my promise to pay a bank money?

If you're willing to do that, we should talk.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.
If banks can't lend out deposits, what exactly do they lend out?

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf.

I'd love to know what the offsetting asset is that's related to this liability.

 

[Toddsterpatriot]

They are not money that is withheld from deposits, or salted away in case of emergency.

Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?

- The Fed is not "holding $10M" FROM anything. The Fed gave those reserves to the bank by putting them in their reserve account. The reserves are a completely separate thing from the deposit. They are related because reserves are used to keep score when banks accept deposits and have checks clear that are drawn on their accounts.

But the two kinds of money are not exchanged. Bank deposits never become central bank reserves or vice versa.

But the two kinds of money are not exchanged.

You are mistaken.

- No, Todd, I'm not.

Your bank account is a bank liability. It is money to you, it is not money to the bank.

It is worth nothing to anyone. A bank "using a deposit" to lend would be like me asking if you wanted to take over my house payment and paying me interest for the privilege of doing so.

Reserves are liabilities of the central bank. They are completely different from the liabilities of your bank, which you call money. The Fed has no use for a bank deposit at a commercial bank. It's a liability of the commercial bank. It has no value to the Fed.

It will not exchange it for anything.

Your bank account is a bank liability. It is money to you, it is not money to the bank.
It is worth nothing to anyone.

You said it is money to me then you said it is worth nothing to anyone.
Are you smoking some herb?

- It's money to you.

The bank can't lend your deposit, which would require actually reducing your deposit balance and giving it to somebody else.

How would you ever get your money out of your bank account if they did that?

Your bank balance is your record that the bank owes you money. If they actually reduced your bank balance to create a deposit for a borrower, the record of their debt to you would be gone. You would have lost your claim to the balance in your bank account forever. It's nonsense. Banks don't lend deposits.

The bank can't lend your deposit

They wouldn't lend my loan.

which would require actually reducing your deposit balance and giving it to somebody else.

Why are you confusing deposit account with deposit?
It must be because you don't know what you're talking about.

 

[Agit8r]

They produce currency. This is a subtle difference.

 

[Pksimon2007]

- Those reserves are not a subtraction from the deposit the bank received.

When a bank accepts a check deposit for $100, it creates a deposit balance (a bank liability) for the customer of $100.

It also receives a balance in its reserve account (an asset) of $100 from the Fed.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything. Those reserves aren't subtracted from the deposit. They are the asset which the bank receives for accepting the deposit.

Those reserves are not a subtraction from the deposit the bank received.

The bank has $9 million available to lend. $1 million it cannot lend.

It now has $100 in deposits which it must reserve. But it received $100 in reserves, so the bank doesn't need to do anything.

Where did I say the bank had to do anything?

- That's incorrect.

Those deposits can't be loaned out at all. Deposits are a liability. They are not an asset which can be given to anyone to use.

Banks can't lend out the central bank's reserves.

Reserve requirements are not restrictions on lending at all.

I explained what reserve requirements do in my third post under the OP.

The net lending capability that the bank received because of these deposits is zero.

Those deposits can't be loaned out at all.

Sure they can.

Banks can't lend out the central bank's reserves.

It happens every day.

The net lending capability that the bank received because of these deposits is zero.

I took in $10 million in deposits and I can lend out $0?
Man, I'd return that book you're reading. Lots of bad info.

- Todd, you're getting your information from blogs or somewhere.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.

It doesn't exist, because it makes no sense.

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf. There is no tangible money in a bank deposit. A bank deposit is an IOU of a bank, just like a mortgage is an IOU to a bank.

A mortgage is my liability. Can I lend my mortgage to you? Will you pay me interest to borrow my promise to pay a bank money?

If you're willing to do that, we should talk.

Quote me anywhere from the Federal Reserve Act or any banking law which says that banks can lend out deposits and hold a portion in reserves.
If banks can't lend out deposits, what exactly do they lend out?

A deposit is a bank liability - a promise to get you cash of you want or to make payments on your behalf.

I'd love to know what the offsetting asset is that's related to this liability.

- Reserves!

If you deposit a check, the check is an asset. The bank can't use it in any way to service the deposit liability it has assumed.

The bank conceptually swaps the check with the central bank for reserves. The central bank conceptually swaps the check with the issuing bank and takes reserves from their reserve account.

Central bank reserves are an asset to a bank.