| Subject: | Re: [socialcredit] U.S. Economics Test | | Date: | Monday, August 13, 2007 14:24:14 (+0930) | | From: | John Hermann <hermann @............au>
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| In reply to: | Message 4962 (written by Keith Wilde) |
>> By Mr. McMaster: Q. So they pay three per cent and
>> invite the public to deposit by advertisements just to
>> get a smoke screen?-
>>
>> A. I should say that.
That is not correct. Banks and other depositories invite the public to
transfer their deposits from transaction accounts to interest-bearing
accounts because the latter generally have a reduced reserve requirement (in
the U.S. we find that term deposits have zero mandatory reserve
requirement). This action effectively frees up reserves, which may be used
by commercial banks in support of additional lending to the public.
In regard to this method of acquiring excess reserves, the interest paid to
depositors is generally a lower cost to a bank than is the cost of borrowing
the same quantity of reserves from within the financial system. This
explains the incentive for banks to offer interest-bearing deposits to the
public.
John Hermann
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