So we all know that commercial banks create new money out of thin air, in the form of loans and mortgages.
My question is what fraction of loans must they hold in reserves/deposit, and who enforces these regulations?
I thought the figure (in the UK) was between 1% and 10%, but I've read in a few places that there is no technical limit, and that commercial banks can basically lend out as much as they like, no matter how little they hold in reserve. Obviously they run the risk of becoming insolvent if they do this recklessly.
According to Wikipedia:
Canada, the UK, New Zealand, Australia and Sweden have no reserve requirements.
This does not mean that banks can - even in theory - create money without limit. On the contrary: banks are constrained by capital requirements, which are arguably more important than reserve requirements even in countries that have reserve requirements.
I'm trying to get my head round the details of "capital requirements" right now, the definitions are a bit complicated. I hope someone can enlighten me!