|Subject:||Re: [socialcredit] U.S. Economics Test|
|Date:||Monday, August 13, 2007 06:45:48 (-0700)|
|From:||william_b_ryan <william_b_ryan @.....com>
John, Douglas' point is correct. 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. A perfectly coordinated banking system
has no need whatsoever for reserves, 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.
--- John Hermann <email@example.com> wrote:
>> By Mr. McMaster: Q. So they pay three per cent and
>> invite the public to deposit by advertisements just
>> 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
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.
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