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There is no such thing as fractional reserve banking. The multiplier is a myth. Quite why this persists when the Bank of England debunked it in 2014 [0] is any

There is no such thing as fractional reserve banking. The multiplier is a myth. Quite why this persists when the Bank of England debunked it in 2014 [0] is anybody’s guess. Just another of those concepts that is neat, plausible and wrong. [0]: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

JumpCrisscross 4d ago
> There is no such thing as fractional reserve banking Yes, there is. We just changed how we measure the fraction from a crude one like a reserve requirement (which takes zero account of asset quality or funding source) to finer and more-robust ones like capital and liquidity reqirements. Banks still have to hold reserves. And those required reserves constrain their lending and thus the amount of money they can create. The limits just aren't the old-school reserve requirement.
- neilwilson 4d ago
  They don’t constrain the quantity of lending. They only change the price. Liability side controls don’t work.
  - JumpCrisscross 4d ago
    > They don’t constrain the quantity of lending. They only change the price Which country's capital and liquidity requirements are you thinking of? Because Basel III dictates ratios. These are hard limits on lending.
    - neilwilson 4d ago
      Loans create deposits, deposits are used to buy bank capital issued by banks. There’s no hard limits. They are ratios which are preprepared because a bank knows how big its sales pipeline is and that takes time to complete. Nothing is limited in quantity. Even the silly SLR they have in the US is a pricing limit, not a quantity - as we see every time somebody moans about how much the deficit has gone up.
      - JumpCrisscross 4d ago
        > There’s no hard limits. They are ratios Ratios are limits! > Nothing is limited in quantity Of course it is. At a certain point, compliance will say you literally cannot issue loans of certain types because of capital or liquidity ratios. If compliance fails to do that, regulators come in and yell at everyone.
        neilwilson 3d ago
        I make $100 of loans, that creates $100 of deposits which move around. The capital ratio is 20%. I sell $20 of capital in exchange for $20 of deposits which are deleted. And then I do the same tomorrow. All ratios met. No limit on loans.

JumpCrisscross 4d ago

> There is no such thing as fractional reserve banking Yes, there is. We just changed how we measure the fraction from a crude one like a reserve requirement (which takes zero account of asset quality or funding source) to finer and more-robust ones like capital and liquidity reqirements. Banks still have to hold reserves. And those required reserves constrain their lending and thus the amount of money they can create. The limits just aren't the old-school reserve requirement.

neilwilson 4d ago
They don’t constrain the quantity of lending. They only change the price. Liability side controls don’t work.
- JumpCrisscross 4d ago
  > They don’t constrain the quantity of lending. They only change the price Which country's capital and liquidity requirements are you thinking of? Because Basel III dictates ratios. These are hard limits on lending.
  - neilwilson 4d ago
    Loans create deposits, deposits are used to buy bank capital issued by banks. There’s no hard limits. They are ratios which are preprepared because a bank knows how big its sales pipeline is and that takes time to complete. Nothing is limited in quantity. Even the silly SLR they have in the US is a pricing limit, not a quantity - as we see every time somebody moans about how much the deficit has gone up.
    - JumpCrisscross 4d ago
      > There’s no hard limits. They are ratios Ratios are limits! > Nothing is limited in quantity Of course it is. At a certain point, compliance will say you literally cannot issue loans of certain types because of capital or liquidity ratios. If compliance fails to do that, regulators come in and yell at everyone.
      - neilwilson 3d ago
        I make $100 of loans, that creates $100 of deposits which move around. The capital ratio is 20%. I sell $20 of capital in exchange for $20 of deposits which are deleted. And then I do the same tomorrow. All ratios met. No limit on loans.