Nope I never said that, you did in a childish attempt at point scoring.
Go back and do some homework. I'll give you a hint - so far you are looking in all the wrong places.
So are you now saying that you don't believe that banks retain funds equal to 100% of the amount of its customers' deposits as readily available reserves?
So are you now saying that you don't believe that banks retain funds equal to 100% of the amount of its customers' deposits as readily available reserves?
No. He is saying that whether or not the banking system is a fractional reserve banking system is unaffected by whether banks retain funds equal to 100% of the amount of their customer deposits.
a) We don't have a fractional reserve banking system and have not had for more than 2 decades. b) No. banks do not retain funds equal to 100% of customers' deposits as readily available reserves. What is more no bank that wanted to make a profit ever has.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
So are you now saying that you don't believe that banks retain funds equal to 100% of the amount of its customers' deposits as readily available reserves?
TBH it looks as though you may be confused. Banks lend money so the assets covering their customers deposit are their loans plus some liquid assets including cash and government bonds. You might be thinking of full reserve banking - it doesn't exist as far as I'm aware and probably never has.
Any expressed market opinion is my own and is not to be taken as financial advice
TBH it looks as though you may be confused. Banks lend money so the assets covering their customers deposit are their loans plus some liquid assets including cash and government bonds. You might be thinking of full reserve banking - it doesn't exist as far as I'm aware and probably never has.
You guys seem very confused.
Peter, if full reserve banking doesn't exist then we must have fractional reserve banking - do you agree? But MIW says we don't have a fractional reserve banking system so which one of you is right?
Surely it's either full reserve banking or fractional reserve banking? unless you believe in no reserve banking of course?
Peter, if full reserve banking doesn't exist then we must have fractional reserve banking - do you agree? But MIW says we don't have a fractional reserve banking system so which one of you is right?
Surely it's either full reserve banking or fractional reserve banking? unless you believe in no reserve banking of course?
No FRB was replaced by the BASEL arrangement whereby the banks must hold shareholder capital in liquid reserves of cash, government bonds and several other quality liquid instruments that are accepted. That isn't customers deposits, it's shareholders money. that is called the Tier 1 capital reserve. the banks also hold all of the loans that they have made, which by nature are not as liquid as cash or government bonds, but they are assets that have a value. If the loans are of good quality with few arrears then their book has a high value, if its full of crappy loans with high arrears then it has a lower value. that was the problem in the USA where the government bought the crappy loan books to recapitalise the banks. We didn't have to do that here.
The system is designed so that banks can handle a run on deposits of 8% to 10% from their shareholders money before they need to sell their loan book. That would be a massive bank run as you would appreciate. Of course they will be insolvent then and the RBA or APRA would have to become a type of liquidator come bankruptcy trustee and sell off the loan book, but it should mean little or no risk for taxpayers.
Under the proposed BASEL III arrangement most banks globally will need to build up their Tier I reserves Thus strengthening the banks position and making the shareholders put more skin in the game. The regulators around the world are still hassling over the fine detail but it will be introduced and banks globally will become stronger. each country can have small variations, but if any nations banks are seen to be more brittle than the rest of the globe then in times of stress they will struggle to attract support.
it's a completely different system to the old FRB system where high deposit reserves were held to stabilise the system. That's the system that I grew up with in banking, but when the world did away with gold backed currencies the monetary system changed completely, so changes were needed to the banking system as well. Most people still don't understand the new system - I'm still learning as most of us are.
Peter, if full reserve banking doesn't exist then we must have fractional reserve banking - do you agree? But MIW says we don't have a fractional reserve banking system so which one of you is right?
Surely it's either full reserve banking or fractional reserve banking? unless you believe in no reserve banking of course?
Strictly, you are correct. Any banking system where full liquid reserved are not kept can be called fractional reserve. But that is not a useful distinction because there has not been such a thing as a full reserve banking system for hundreds of years.
These days when you say a "fractional reserve banking system" most people understand you to mean a system where the fraction of reserves held is a defining property of the system which puts an upper limit on the money supply and means banks are reserve-constrained. This is what Australia had until the 1980s, but no longer has. The Chinese banking system is reserve-constrained, as an example.
the bull market on gold is well and truely over, just admit it and move on.
It's still up 60% over the last 4.5 years.
HA Ha, true, and a point timmy chooses to ignore. How much has your perth home risen in value over the last 4.5 years pigiron? 80%? 50%. Or 6.2% lol lol.
HA Ha, true, and a point timmy chooses to ignore. How much has your perth home risen in value over the last 4.5 years pigiron? 80%? 50%. Or 6.2% lol lol.
the article is so bad I couldn't read it - we are not in a fractional reserve banking system.
Still gold has had a nice little sucker rally so you might still get out with the shirt on your back.
Peter you say we are not in a fractional reserve banking system. Can you explain where my understanding falls down? I know in 1988 the reserve requirement was abolished in Australia, essentially allowing a zero fraction as reserves.
Would you say that the US has a fractional reserve banking system? They need to hold a certain fraction of high quality liquid assets in order to meet cash requirements. To me that is a fractional reserve banking system, i.e. they must hold a certain fraction of quality liquid assets as reserves. The difference with Australia and 5 other countries throughout the world is that they have a zero reserve requirement, relying on the central bank to backstop them when there is a shortage of reserves to pay out deposits on demand.
I'm aware that at university the way fractional reserve banking started operates a little differently to todays banking system in how loans are created, but imo with the same result i.e. lending is restricted only by the fraction of reserves that must be held as high quality liquid assets.
I'm keen to learn so please tell me where my knowledge is lacking.
miw
18 Jul 2013, 11:58 PM
Strictly, you are correct. Any banking system where full liquid reserved are not kept can be called fractional reserve. But that is not a useful distinction because there has not been such a thing as a full reserve banking system for hundreds of years.
These days when you say a "fractional reserve banking system" most people understand you to mean a system where the fraction of reserves held is a defining property of the system which puts an upper limit on the money supply and means banks are reserve-constrained. This is what Australia had until the 1980s, but no longer has. The Chinese banking system is reserve-constrained, as an example.
Just read this, pretty much answers my question. So is the only difference for Australian banks that they have no restriction on the amount that they can lend compared to banks that a have a reserve requirement? Wouldn't this make them more risky? I've read somewhere recently that this places an added reliance on the central bank to bail them out when there is a shortage of funds to pay out deposits?
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