jackg (OP)
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February 23, 2020, 06:40:05 PM Last edit: February 23, 2020, 06:53:59 PM by jackg |
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Just going to use this post to explain what it is so if you have proof feel free to reply without reading this.
As I understand it (not looked at it recently) fractional reserve banking is a system that allows banks more earning power on money you put in while allowing the customer access to some of their funds.
For example (@10% reserve): If you deposit $3000 into a bank account, the bank is able to lend out $2700 and keep $300 of your original $3000. If this $2700 is then lent out to someone who wants to buy a new kitchen for example, they pay the cashier and the business owner receives the funds in their account. Now of this $2700 the bank is able to lend out $2430 and store $270 of the original funds as the reserve and this can continue on...
This often gets explained as a "concept" or "theory" but does this actually happen?
Since the commonly used example allows $1000 to become $9000 (I may update this if I get libre running). Edit: spreadsheet says $2912.37 as a floor of the number of new money produced with a 10% reserve).
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nakisama
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February 23, 2020, 06:52:24 PM |
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now put into that mix that both the person who made first deposit and business owner want to withdraw their funds at the same time.
how will the bank manage that ?
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jackg (OP)
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https://bit.ly/387FXHi lightning theory
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February 23, 2020, 06:57:35 PM |
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now put into that mix that both the person who made first deposit and business owner want to withdraw their funds at the same time.
how will the bank manage that ?
By lending from the central bank. Its generally advised you don't store much in bank accounts and banks arent encouraging saving as much anymore now.
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Tytanowy Janusz
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February 23, 2020, 07:14:58 PM Last edit: February 23, 2020, 07:29:25 PM by Tytanowy Janusz Merited by jackg (3), o_e_l_e_o (1) |
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You can read my thread where i try to explain that even a bitcoin is not creation resistant: https://bitcointalk.org/index.php?topic=5094088.msg49096584#msg49096584And yes. It's happening globally in every bank. In Poland (country where i leave) minimal reserves are equal to 3.5% ! - https://www.nbp.pl/home.aspx?f=/o_nbp/informacje/polityka_pieniezna.html (its NBP official website NBP - National Bank of Poland) Wysokość stopy rezerwy obowiązkowej ustala Rada Polityki Pieniężnej. Od 31 grudnia 2010 r. stopa rezerwy obowiązkowej wynosi 3,5 proc. translation: The required reserve rate is set by the Monetary Policy Council. From December 31, 2010, the required reserve ratio is 3.5 percent. Give me some time and I'll find official UK National Bank statemnet about mandatory reserves. US: A depository institution's reserve requirements vary by the dollar amount of NTAs held by customers of that institution. Effective 18 January 2018, institutions with net transactions accounts:
Of less than $16 million have no minimum reserve requirement; Between $16 million and $122.3 million must have a liquidity ratio of 3% of NTAs; Exceeding $122.3 million must have a liquidity ratio of 10% of NTAs.[8] https://en.wikipedia.org/wiki/Reserve_requirement#United_StatesUK: United Kingdom In the UK the term clearing banks is sometimes used, meaning banks that have direct access to the clearing system. However, for the purposes of clarity, the term commercial banks will be used for the remainder of this section.
The Bank of England, which is the central bank for the entire United Kingdom, previously held to a voluntary reserve ratio system, with no minimum reserve requirement set. In theory this meant that commercial banks could retain zero reserves. The average cash reserve ratio across the entire United Kingdom banking system, though, was higher during that period, at about 0.15% as of 1999.[12]
From 1971 to 1980, the commercial banks all agreed to a reserve ratio of 1.5%. In 1981 this requirement was abolished.[12]
From 1981 to 2009, each commercial bank set out its own monthly voluntary reserve target in a contract with the Bank of England. Both shortfalls and excesses of reserves relative to the commercial bank's own target over an averaging period of one day[12] would result in a charge, incentivising the commercial bank to stay near its target, a system known as reserves averaging.
Upon the parallel introduction of quantitative easing and interest on excess reserves in 2009, banks were no longer required to set out a target, and so were no longer penalised for holding excess reserves; indeed, they were proportionally compensated for holding all their reserves at the Bank Rate (the Bank of England now uses the same interest rate for its bank rate, its deposit rate and its interest rate target).[13] In the absence of an agreed target, the concept of excess reserves does not really apply to the Bank of England any longer, so it is technically incorrect to call its new policy "interest on excess reserves". https://en.wikipedia.org/wiki/Reserve_requirement#United_KingdomList of 40+ countries and minimal reserve requirement: https://en.wikipedia.org/wiki/Reserve_requirement#Other_countries_and_districts
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o_e_l_e_o
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February 23, 2020, 09:20:53 PM |
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This often gets explained as a "concept" or "theory" but does this actually happen? Not only does fractional reserve banking take place, but combined with lending out money that doesn't actually exist, it is the main form of money creation in the world. Lots of people think that the majority of new money which enters circulation is "printed" by the government, when in fact, only about 3% of it is. Around 97% of new money entering circulation comes from banks practicing fractional reserve and therefore creating new money to lend out. Now, in terms of the UK specifically, here are a couple of publications directly from the Bank of England (the UK's central bank) which you might find interesting. The first one, available here ( https://www.bankofengland.co.uk/-/media/boe/files/speech/2016/central-banks-and-digital-currencies.pdf), is from a presentation given by the Deputy Governor for Monetary Policy. I would draw your attention to the first chart at the top of page 9, showing that "Reserves inc. cash" is absolutely dwarfed by the "Liabilities" column. The second one, available here ( https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf), is a report the Bank of England issues a few years ago. It specifically states that commercial banks practice fractional reserve and create new money out of thin air. Here are a couple of relevant quotes: This description of money creation contrasts with the notion that banks can only lend out pre-existing money, outlined in the previous section. Bank deposits are simply a record of how much the bank itself owes its customers. So they are a liability of the bank, not an asset that could be lent out. In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available.
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exstasie
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February 23, 2020, 10:38:18 PM |
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Good points but that doesn't mean BTC are being created. It just means multiple people believe they own the same BTC, so in a bank run an insolvency would become apparent. It does have the same effect as inflation though, which is price suppression. This is relevant to Wall Street players like Bakkt, who under CFTC regulations can legally pledge a single BTC to multiple people.
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o_e_l_e_o
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February 24, 2020, 09:18:49 AM |
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Good points but that doesn't mean BTC are being created. It just means multiple people believe they own the same BTC, so in a bank run an insolvency would become apparent. It does achieve the exact same effect as when banks practice fractional reserve or create money for loans, though. You are obviously right that no new BTC is created, but in the same way, no new physical cash is actually printed in these cases. All that changes is the numbers on the bank/exchange's internal database, and the numbers that are shown on their customer's computer screens when they log in. As you flagged up in a thread last week, we know that some of the biggest exchanges practice exactly this - keeping only a fraction of their customers' bitcoin in their cold wallets/reserves, and using the rest to either invest or lend out. Just as with banks, if everyone tried to own their own bitcoin, there would a "bank run", the exchanges would collapse, and a lot of people would lose a lot of money. Such are the risks you take when you trust a third party to hold your coins for you.
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davis196
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February 24, 2020, 01:09:07 PM |
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What kind of proof are you searching for? The only proof is inside the accounting books of every bank.I'm not a banker or accountant,so I don't have access to such accounting data.Fractional reserve banking works for about 100 years and it's the core of the current global financial system.I wonder what will happen to fractional reserve banking with all the negative interest rates.People aren't incentivized to deposit money in the banks anymore,so the banks just get loans from the central banks(usually fresh printed money).I guess this makes fractional reserve banking into "full debt banking" because there's no reserve.
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February 24, 2020, 01:44:38 PM |
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Just going to use this post to explain what it is so if you have proof feel free to reply without reading this.
As I understand it (not looked at it recently) fractional reserve banking is a system that allows banks more earning power on money you put in while allowing the customer access to some of their funds Fractional reserve banking is a massive misnomer for any fiat system in existence today The modern banking system is not based on "fractional reserve banking" anymore as it operates in an environment where money can be created on demand, "out of thin air" as they say, not from deposits. What is written in textbooks, and what people tend to thoughtlessly repeat here and elsewhere has little relevance to how the present-day banking system works in practice. Banks don't need deposits to create credit because they "create" credit (so-called endogenous money) from collateral provided by the borrowers, so there's no "fractional reserve banking" as it is commonly understood
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jackg (OP)
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February 24, 2020, 06:19:46 PM |
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Yeah fractional reserve banking only takes a hit if most of the economy takes a hit too. The general idea is that someone will probably buy the assets the bank holds as loans and even international banks could bailout a bank in the affected country to try to profit once the country's economy recovers (which is generally pretty likely unless debt is written off by law during that time which is probably unlikely as it'd reduce trust).
Banks with no collateralised debt still have the borrowers to call on for funds in a few years...
And if no one buys the collateral, we can just trick retail again.
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Broly46
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February 24, 2020, 06:26:16 PM |
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I think the fractional reserve is not often quote by mainstream news, but in Asia we are frequent to deal with “shadow banking”, they might be entire two sort of terms, by I feel they share the same purpose, although the shadow banking is openly printing money out of thin air, if you want to challenge it then go ahead and try.
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February 24, 2020, 07:16:58 PM |
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Yeah, this has been one of the biggest troubles of banks all around the world for probably over 5 decades now. They do not really have the money they say they do and that is the problem, if everyone that has money in the bank withdraws their money all together, even central bank cant save that bank and that bank will go bankrupt eventually and not be able to pay some of the people that has money in their bank accounts.
This is both horrible for the banks but at the same time amazing for them since nations and governments will try to save them as much as they can, which means banks can do whatever the hell they want with blackmailing the countries into saving them if anything goes wrong. You open a business and if you go bankrupt nobody saves you, banks do silly risky stuff and if they are in bad situation they are saved.
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jackg (OP)
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https://bit.ly/387FXHi lightning theory
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February 24, 2020, 07:19:09 PM |
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I think the fractional reserve is not often quote by mainstream news, but in Asia we are frequent to deal with “shadow banking”, they might be entire two sort of terms, by I feel they share the same purpose, although the shadow banking is openly printing money out of thin air, if you want to challenge it then go ahead and try.
As in they started printing paper money? I know it's legally possible in most places to print counterfeit money outside of a country and attempt to use it in the country you're in (or it used to be and was a very weird loophole). Is this what's going on or are people actively printing money inside the country and its being accepted?
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DaCryptoRaccoon
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February 24, 2020, 07:25:59 PM |
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Just going to use this post to explain what it is so if you have proof feel free to reply without reading this.
As I understand it (not looked at it recently) fractional reserve banking is a system that allows banks more earning power on money you put in while allowing the customer access to some of their funds.
For example (@10% reserve): If you deposit $3000 into a bank account, the bank is able to lend out $2700 and keep $300 of your original $3000. If this $2700 is then lent out to someone who wants to buy a new kitchen for example, they pay the cashier and the business owner receives the funds in their account. Now of this $2700 the bank is able to lend out $2430 and store $270 of the original funds as the reserve and this can continue on...
This often gets explained as a "concept" or "theory" but does this actually happen?
Since the commonly used example allows $1000 to become $9000 (I may update this if I get libre running). Edit: spreadsheet says $2912.37 as a floor of the number of new money produced with a 10% reserve).
This is exactly what they do the lend more than they actually have on the basis that most people will pay back the debt and allow them to continue the fraud. Unlike them lending what they have in there reserves this fictional money is created out of no where with no actually backing. In the UK they do not have a reserve requirement. None of the banks are restricted by their reserves when making a loan or finance agreements. The bank can expand their balance sheet to make the a loan or finance agreement with the client, in turn this will effectively increasing the money supply available. It's like a giant game on monopoly with them passing go on every roll. The worrying thing is what happens where we start to notice the debasement of the underlying currency and people start to panic. Already we see the purchase power of the USD and GBP starting to fall over time this will accelerate and cause a meltdown in the western fictional money system meanwhile Russia, china and the middle east will be looking to create gold backed currency leading to the being given AAA rating's by the IMF...
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┏━━━━━━━━━━━━━━━━━┓ ┃ 𝔱𝔥𝔬𝔲 𝔰𝔥𝔞𝔩𝔱 𝔴𝔬𝔯ⱪ 𝔣𝔬𝔯 𝔶𝔬𝔲𝔯 𝔟𝔞𝔤𝔰 ┃ ┃ ➤21/M ┃ ┃ ███▓▓ ███▓▓ ███▓▓ ███▓▓┃
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Broly46
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February 24, 2020, 07:39:10 PM |
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I think the fractional reserve is not often quote by mainstream news, but in Asia we are frequent to deal with “shadow banking”, they might be entire two sort of terms, by I feel they share the same purpose, although the shadow banking is openly printing money out of thin air, if you want to challenge it then go ahead and try.
As in they started printing paper money? I know it's legally possible in most places to print counterfeit money outside of a country and attempt to use it in the country you're in (or it used to be and was a very weird loophole). Is this what's going on or are people actively printing money inside the country and its being accepted? Well, if you know the origin of alipay, wechat pay, jiedaibao, I think they’re some of the most primitive shadow banking, and I believe there is even more that goes undetected, people are getting money from all source from the internet, printing digital money? Yeah sort of true, virtual coin to be spent on the fortnite? I think they’re money too since govt may want to tax that money.
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jackg (OP)
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February 24, 2020, 07:41:13 PM |
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Back to my other point, is this not already designed by beurocrats to encourage a lot of spending?
If someone didn't pay their loan then their collateral would be put up for sale and the bank would already have needed to print money to pay them, but wouldn't this already be factored into the government measured inflation?
(the British government measures inflation based on grocery prices so surely this would still remain fairly stable as the currency has already been minted into the supply).
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DaCryptoRaccoon
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February 24, 2020, 08:51:14 PM |
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Back to my other point, is this not already designed by beurocrats to encourage a lot of spending?
If someone didn't pay their loan then their collateral would be put up for sale and the bank would already have needed to print money to pay them, but wouldn't this already be factored into the government measured inflation?
(the British government measures inflation based on grocery prices so surely this would still remain fairly stable as the currency has already been minted into the supply).
I think they class this as "Toxic" debt and once they have enough "Toxic" un-recoverable loans or defaults if there own credit collections services are unable to recover it they sell them in packages to "outside debt collection services" I have seen a lot of default on banking products make there way into the hands of private collection firms for collection this means they can bundle them up and sell them on at a loss still to another party who will try enforce the debt. The other thing I have seen is the use of the courts for re-possession of property for debt's related to mortgages ect. Both ways they seem to have a way to get out of there positions if the private company were to buy the "Toxic" debt they still have income to produce more loans or credit as they use that income to then counter the "Toxic" debt that has been lost or written off. Maybe Satoshi should have used this headline in the Genesis block "Financial crisis: just how big is Britain's toxic debt?" Answer MASSIVE! https://www.telegraph.co.uk/finance/4325899/Financial-crisis-just-how-big-is-Britains-toxic-debt.html
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┏━━━━━━━━━━━━━━━━━┓ ┃ 𝔱𝔥𝔬𝔲 𝔰𝔥𝔞𝔩𝔱 𝔴𝔬𝔯ⱪ 𝔣𝔬𝔯 𝔶𝔬𝔲𝔯 𝔟𝔞𝔤𝔰 ┃ ┃ ➤21/M ┃ ┃ ███▓▓ ███▓▓ ███▓▓ ███▓▓┃
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Hydrogen
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February 25, 2020, 11:45:45 AM |
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The sad state of affairs is stable coins like tether requiring greater reserves and safeguards in contrast to regulated and established banks. And many unregulated 3rd party payment apps being more honest and trustworthy than regulated options like paypal. In theory, we often see the media label new innovations and regions of the financial landscape not currently under control as being guilty of numerous allegations. In practice, the more regulated industries and finance become, the more they appear to become corrupt, untrustworthy and unreliable. It is an interesting precedent to behold. This is relevant to Wall Street players like Bakkt, who under CFTC regulations can legally pledge a single BTC to multiple people. Very interesting. I hadn't known that. Its more a derivative market of some type.
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exstasie
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February 25, 2020, 09:49:31 PM |
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This is relevant to Wall Street players like Bakkt, who under CFTC regulations can legally pledge a single BTC to multiple people. Very interesting. I hadn't known that. Its more a derivative market of some type. Yup, this article delves into some of the problems: https://www.investopedia.com/news/how-commingling-and-rehypothecation-affect-bitcoin/There are two harmful potential consequences to commingling. First, the practice makes it difficult to distinguish between assets and liabilities in a CCP’s balance sheet because they are not required to disclose individual amounts. As a result, there is no way to know whether they have enough assets to cover their liabilities. Rehypothecation further complicates bitcoin’s identity. Put simply, rehypothecation allows CCPs to use given bitcoin as collateral several times. “It is the process by which a lender receives an asset as collateral for a loan, and then pledges that collateral to cover its own exposure to a separate party which then pledges the same collateral to a different part,” explains Long. This could eventually lead to an implosion when registered owners start trying to pull their collateral, revealing an insolvency. Sort of another variation of how Mt Gox collapsed. All the CFTC registrations and licenses in the world can't prevent that.
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squatz1
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February 26, 2020, 05:12:43 AM |
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This often gets explained as a "concept" or "theory" but does this actually happen? Not only does fractional reserve banking take place, but combined with lending out money that doesn't actually exist, it is the main form of money creation in the world. Lots of people think that the majority of new money which enters circulation is "printed" by the government, when in fact, only about 3% of it is. Around 97% of new money entering circulation comes from banks practicing fractional reserve and therefore creating new money to lend out. Now, in terms of the UK specifically, here are a couple of publications directly from the Bank of England (the UK's central bank) which you might find interesting. The first one, available here ( https://www.bankofengland.co.uk/-/media/boe/files/speech/2016/central-banks-and-digital-currencies.pdf), is from a presentation given by the Deputy Governor for Monetary Policy. I would draw your attention to the first chart at the top of page 9, showing that "Reserves inc. cash" is absolutely dwarfed by the "Liabilities" column. The second one, available here ( https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf), is a report the Bank of England issues a few years ago. It specifically states that commercial banks practice fractional reserve and create new money out of thin air. Here are a couple of relevant quotes: This description of money creation contrasts with the notion that banks can only lend out pre-existing money, outlined in the previous section. Bank deposits are simply a record of how much the bank itself owes its customers. So they are a liability of the bank, not an asset that could be lent out. In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available. I think it's important to note that these banks aren't acting all by themselves when they're 'creating' this money. They're working alongside the Federal Reserve to be allowed to just electronically create the funds. The fed knows how much money is being created, and there is regulation when this is done. it's not like a bank can just send you 1 trillion dollars without any sort of oversight at all. But back onto the topic here: Yes, fractional reserve banking is a VERY common practice in the world. Typically only comes up around common people when there is some sort of bank run. But ya know, in the US and EU there is the FDIC / EU backing of funds in the bank (up to 250??k in the us, and 100k in the EU)
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