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I don't think it quite works this way... if you deposit $1000, the bank isn't required to keep $1000 on hand, so with your 1/30 ratio, it means they would hold
by zinkem 13y ago
I don't think it quite works this way... if you deposit $1000, the bank isn't required to keep $1000 on hand, so with your 1/30 ratio, it means they would hold onto about $34 and loan out the rest with interest.
I am definitely not an expert on banking.
- deleted 13y ago[deleted]
- EliRivers 13y agoYou're right in the first step; we can only end up with the 30000 dollars if the money is deposited and relent several times ( http://en.wikipedia.org/wiki/Fractional_reserve_banking#Example_of_deposit_multiplication http://en.wikipedia.org/wiki/Fractional_reserve_banking#Exam... ). The example uses a single bank, but given that all the money goes through various banks as people borrow it and put it somewhere, I could still expect my 1000 dollar deposit to end up in aggregate as a 30000 dollar loan.