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It seems to me that when they moved away from the
structural regulatory factor the fractional reserve of 9 or 10 % which ever it
was in fact, to central bank regulation of interest rates, fuid and reactive,
and not structural, estimated by the over-nigh cash rate the system focus moved
from supply to demand, that is it countered exceptional demand of new money so
it didnt threaten the 'reserve' status across the banking system rather than
pressure banks to increase reserve to match the new demand in money
supply.
This would mean the traditional view of reserves
would have dropped into history.
I suspect that the reserve aspect would take care
of itself, like water finding its own level in a little more time than if forced
by regulation.
Peter
----- Original Message -----
Sent: Tuesday, August 14, 2007 12:29
PM
Subject: Re: [socialcredit] U.S.
Economics Test
At 11:15 PM 13/08/2007, William Ryan wrote:
... Beyond regulatory
requirements, a bank needs reserves only to cover deposits lost to other
banks, as they are lost.* Banks of course individually gain and lose
deposits to other banks, but if a bank has no net loss of deposits as it is
granting loans, it has no need for reserves to cover them.
Conventional banking wisdom (dogma) holds
that a depository needs reserves to "cover" deposits by its own customers. And
that any newly-created deposits (i.e., arising from new loans advanced by the
depository) require additional reserves.
A perfectly coordinated banking
system has no need whatsoever for reserves,
Yes it does. The reason being that the real purpose of reserves
is not to provide backing for deposits (because deposits already perform all
of the functions of money and do not need backing), but rather to provide the
central bank with additional means (apart from interest rates) of adjusting
the overall volume of bank lending, and also the means to adjust the volume of
legal tender - according to society's need for cash at every point in time.
exactly as if it were one large
monopoly bank with many branches. As the banking system becomes
increasingly coordinated, the need for reserves is
diminishing.
* Simple withdrawals are similar. Individual
banks do not issue their own banknotes and coins, but must purchase them
from the central bank. If deposits of
banknotes and coins equal
withdrawals of banknotes and coins, there is no need for reserves to
purchase them. Regardless of the volume of
transactions.
This is a thoroughly
confused statement. All coins and notes held by a bank ARE reserves. And as
such are entirely interchangeable with creditary deposits in the bank's
account with the central bank.
- John Hermann
>> 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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