Fractional Banking - The nature of modern banking.

[Kiro]

http://www.youtube.com/watch?v=eWl7Mb49vSk

Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand. Fractional reserve banking necessarily occurs when banks lend out any fraction of the funds received from deposit accounts. This practice is universal in modern banking.

By its nature, the practice of fractional reserve banking expands money supply (cash and demand deposits) beyond what it would otherwise be. Because of the prevalence of fractional reserve banking, the broad money supply of most countries is a multiple larger than the amount of base money created by the country's central bank. That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators.

Central banks generally mandate reserve requirements that require banks to keep a minimum fraction of their demand deposits as cash reserves. This both limits the amount of money creation that occurs in the commercial banking system, and ensures that banks have enough ready cash to meet normal demand for withdrawals. Problems can arise, however, when a large number of depositors seek withdrawal of their deposits; this can cause a bank run or, when problems are extreme and widespread, a systemic crisis. To mitigate these problems, central banks (or other government institutions) generally regulate and oversee commercial banks, act as lender of last resort to commercial banks, and also insure the deposits of the commercial banks' customers.

inb4 close-minded fools blow this off as more conspiracy theorist </guartz> nonsense despite this shit happening in front of their eyes on a daily basis.

Video is only 10 minutes long, I suggest you watch it and learn something.

[Tyche]

Did your university not require you to take macroeconomics? This isn't even remotely new or threadworthy.

[Correction]

Did you just learn today how banks make money and how fiat currency works? Really?

[Kiro]

Yeah because posting something on a forum means I just learned about it, right? Hurrrr. Posting this for people who DO NOT KNOW. Come on now, your elitist is showing.

[Correction]

lol I see a class I took my junior year of high scool = elitist.

[Kiro]

No, you saying "omg you just learned about this? lol really?" = elitist. Don't be a vagina, Correction.

[Tyche]

I used to have an entire lecture recorded that discussed this. It's been a long ass time since I took the class on it, and it was a gen ed course that I didn't care about. IIRC, banks are obligated, by law, to keep only a certain percentage of funds on hand. The rest of the money can be relegated to lending. Otherwise, how would you be able to go to a bank and get out a mortgage? A lot of banks also have time restraints on withdrawls for savings accounts. I don't really think it's that big of a deal.

[Kiro]

Did you at least watch the video?

[Blarg]

I think there is a movie that involved people all trying to get their money out but the bank didn't keep it all there so people were sad and stuff

[Tyche]

No, because I had to spend a semester studying this shit. The quote you posted just reiterates the basic principles of the way banks have to do lending. If there's something new and profound in the video that you didn't include in the quote, you probably should, otherwise your just quoting simple economics that most college freshmen or sophomores should already know.

[Darus Grey]

I agree...welcome to the club, you now know something everyone else has for ages.

[Correction]

Did you at least watch the video?

I watched it.

It's macroeconomics 101, with spooky music and 'HOLY SHIT EVERYBODY PANIC' undertones.

[Shuvo]

http://www.youtube.com/watch?v=eWl7Mb49vSk



inb4 close-minded fools blow this off as more conspiracy theorist </guartz> nonsense despite this shit happening in front of their eyes on a daily basis.

Video is only 10 minutes long, I suggest you watch it and learn something.

Haven't been reading what guartz ha been saying, but I don't think that anyone thinks that banking in this matter is a conspiracy theory, you can learn this in most university level economics textbooks. Its similiar to the concept about a leveraged economy, right? (Didn't watch the video I must confess).

The conspiracy theory begins when people start going on about that NWO rubbish led by the banks, that Alex Jones spouts.

Edit: I've actually wondered why people don't use this as a method of protest. If say 20,000 people withdrew 10% of their cash it would hurt the banks so badly you could force the gvmt to listen to you for whatever your cause is.

[thestalkmore]

How's your fairy tattoo Kiro?

[Tyche]

OK, watched the video. It's a bit sensational and not something you can really explain simply in a 10 minute video with an agenda. I suggest you buy a macro book and read up on this. Ironically enough, Ben Bernanke writes a really good one.

[mootsfox]

Did your university not require you to take macroeconomics? This isn't even remotely new or threadworthy.

^

[Blubbartron]

I'm disappointed they didn't even get into the Austrian Business Cycle Theory at all. That's where all the really depressing inevitable conclusions are. Also, since so many people are so knowledgeable in this thread, it'd be fucking spectacular if someone could explain to me why exactly the federal government doesn't use a government institution to print all our money freely, instead of borrowing it dollar for dollar from a collection of private banks (the Fed). I've personally never taken an economics course but, having a degree in mathematics, it has always interested me.

[tyven]

stop being mean to kiro guys, there is a 16 year old on the board and maybe he didnt know how banks made money

[Mizango]

Don't be a vagina, Correction.

Impossible.

Pigs, fly etc..

[Correction]

Impossible.

Pigs, fly etc..

http://i27.tinypic.com/213eq7l.jpg