Talk:Fractional-reserve banking

Example of money multiplier effect confusing

The chart does not correspond to the numbers on the graph since the graph stops at K bank loans, which makes the entire example confusing. The chart should be altered to note somewhere that eventually the total deposit size reaches 500 in theory, rather than stopping at 457

Three Fed economists recommend ditching the money multiplier concept in economics teaching

"This outdated link is often tied to the concept of the “money multiplier,” which is anchored in an obsolete explanation of how the Fed operates and influences banks." https://files.stlouisfed.org/files/htdocs/publications/page1-econ/2021/09/17/teaching-the-linkage-between-banks-and-the-fed-r-i-p-money-multiplier_SE.pdf

Opening statement

The wide opening statement about fractional-reserve banking being dominant is wrong. Fractional-reserve banking is not in widespread use in advanced economies. Modern banks are governed by the principle of risk sensitive capital adequacy, where they are required to hold liquid capital as a buffer against potential losses from their money issuing loans and investments. A notable exception to this is smaller banks in the United States. — Preceding unsigned comment added by 84.212.157.63 (talk) 11:56, 22 August 2022 (UTC)

That capital is their "reserves". SPECIFICO talk 13:51, 22 August 2022 (UTC)

@84.212.157.63 You have completely misunderstood the purpose of the buffer.

The buffer is not to soften the difference between their profitable and unprofitable capital ventures. They could do that with no buffer. Look at retail investors. Many of them invest all their spare capital.

No, the buffer serves to facilitate customers withdrawing money from their accounts. EditorPerson53 (talk) 14:23, 21 March 2023 (UTC)

Money supply exceeding actual supply of money?

The third paragraph of the introduction states:

"Because banks hold in reserve less than the amount of their deposit liabilities, and because the deposit liabilities are considered money in their own right (see commercial bank money), fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank."

This statement seems flawed to me. The idea that "the deposit liabilities are considered money in their own right" is a simplification - a sort of rounding up of the truth. In reality, the deposit liability has a marginally less than 100% chance of yielding when the customer desires to withdraw their money. And even if you disregard bank runs, it's still not quite 100% because there is the chance that the bank fails. The difference is small, granted, but it is very real and it very much invalidates the idea that the money supply may exceed the supply of actual money.

The difference between the true value of the deposit liability and the stated value (this difference being the inferiority of the promise of money to actual money) becomes more drastic as the bank's assets become either less current or less valuable, as the deposit liability requires the provision of a certain amount of value (the deposited amount) to a certain degree of current-ness (instant).

You may be thinking "I bet bank customers can't do all that logic. They merrily deposit their money as if the cashier were gripping the cash in his hand until the customer comes back to collect it". But customers know exactly what the game is. Many preppers in America refuse to store their cash in banks because they know there is a risk that the bank could collapse and then the promise of money would be worthless. Depositors know the risk and at no time do they ever deem the promise of money fully equal to cold hard cash.

One bird in the hand is worth two in the bush, and so the deposited money is never truly duplicated. EditorPerson53 (talk) 14:50, 21 March 2023 (UTC)

Editor, this talk page is for the purpose of discussing article improvements based on the weight of coverage of the subject. Your comments appear to be discussing your views about banking without offering any references that could be used to update or improve the article text. Please review our policies and guidelines relating to verificaton and due weight of article content. SPECIFICO talk 15:33, 21 March 2023 (UTC)

Table by IMF to OECD maybe you wanna ... ?

... see within description to this pic (Pic by IMF presented 2019 to OECD).

Hi SPECIFICO,
how about this?
Maybe you like it?
Ok, well, it is trivial,
but if you need ...
Best regards, CGB 41.66.96.108 (talk) 15:56, 29 August 2023 (UTC)