Toddsterpatriot
Diamond Member
I thought we were talking about deposits held by individuals at the bank. I've only ever argued that banks can't lend reserves to customers, I never said they can't lend reserves to other banks. Did you ignore this part?https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_Me_8_14_13.pdfAnd you said it again in post #42.
They loan money they have. From the deposits. <andylusion
Nonsense. Deposits are liabilities on the banks balance sheet, and there's nothing in a deposit to lend out
And holy crap, the money deposited is the asset, the depositor account is the liability.
Keep getting that wrong and I'm gonna keep mocking your idiocy.
If someone deposits physical cash, the cash goes into the vault (reserves) and the bank simply marks up their account. The bank doesn't worry about loaning out reserves when it originates, it simply creates the deposit and gets the reserves overnight to meet the requirement.
They have reserves in the vault and you think instead of lending them out, they go out and borrow additional reserves to make good on their loan?
Why in the hell would they do that?
Yeah, that is what makes no sense whatsoever.
I'm a bank. I have $10,000 in my bank vault. I am going to lend out $9,000.
Now I'm already paying interest on the deposits of $10,000.
But I'm not going to loan that out. No no, I'm going to borrow cash reserves from another bank, and pay interest to them as well, and loan that money, not the money I already have.... and am already paying interest on.... but rather the new money I am going to borrow from someone else, to lend to someone else...
WHY?!?!?!?
He is either incorrect, and has been mis-informed... or there is a ton more to this, that we don't know. If he's right, then banks are doing this because of some insane regulation, we are not aware of. It makes no logical sense.
But I'm not going to loan that out. No no, I'm going to borrow cash reserves from another bank, and pay interest to them as well, and loan that money, not the money I already have.... and am already paying interest on.... but rather the new money I am going to borrow from someone else, to lend to someone else...
That's exactly why I mock him, and everyone else who insist banks don't lend out deposits.
Seriously, we can argue technicalities, but deposits have to first ORIGINATE from one of two places.This goes against the grain of the usual way of describing bank lending, which suggests that banks "collect" deposits and then "lend them out." That is not the way it happens at all. In a closed economy (or the world as a whole), fundamentally, (8) deposits come from only two places: new bank lending and government deficits (9). Banks create deposits when they create loans, as explained above. Governments also create deposits when they run budget deficits because they are putting more money into the public's bank accounts than they are taking out. This net flow creates new deposits in the banking system, which has its counterpart on the bank's balance sheet as an increase in reserves: And on the central bank's balance sheet, as we saw before. Banks don't lend out of deposits; nor do they lend out of reserves. They lend by creating deposits. And deposits are also created by government deficits.
Page 4 of the S&P paper.
Neither individual banks nor banks as a whole can "lend out" reserves, but individual banks can and do offload their reserves (particularly excess reserves) by lending them to other banks or by buying assets; but the banks in aggregate cannot do this--in such cases, the reserves that leave one bank's balance sheet just pop up on another, remaining on the central bank's balance sheet all the while.
Lending to other banks, buying assets or by lending them to borrowers, obviously. So what they're saying by "banks don't lend out reserves" is that banks as a whole cannot reduce the reserves in the system. Only the Fed, by selling securities (or letting them mature and not rolling them) or customers by withdrawing and holding cash, can reduce total reserves held by the banking system.
They aren't saying banks hold their own excess reserves and borrow another bank's excess reserves to make an actual loan. Because that would be moronic. So you should probably stop repeating that idiocy, because it's annoying.
They lend by creating deposits. And deposits are also created by government deficits.
I've only ever argued that banks can't lend reserves to customers,
And I keep showing that claim is wrong.
They lend by creating deposits.
Yup. And it works best if they already have deposits to lend.