Talk:Fractional-reserve banking

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Bronze? Тиранесspit leek, bamboozle bullfighter? 20:46, 3 February 2011 (UTC)

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[edit] Really good article on the matter

SlayersX of Thrive Debunked, a blog that takes down one of the more recent libertarian propaganda/conspiracy theory movies around the web, just posted a really good article about fractional-reserve banking. I think this is a good source to use for our article. What do others think? Mr. Anon (talk) 01:35, 24 April 2012 (UTC)

[edit] However, letting these banks fail would have wiped out the cash and savings of every depositor

Is this true? I thought that's what the FDIC is for. Perhaps I'm missing something Cow...Hammertime! 16:32, 14 August 2012 (UTC)

The FDIC is financed by the banking industry so any payments come out of the Deposit Insurance Fund which currently covers only about 1.15% of all deposits. If they had to pay out a significant proportion of that then there could well be a crisis of confidence and a run on the banks which might have caused further banks to fail through a liquidity crisis, although they can borrow up to $500bn from the US Treasury. The FDIC can handle the odd financial institution failing but not a group of really large ones. However, wiping out [all] the cash and savings of every investor is a slight overstatement as obviously some people would get some compensation. Redchuck.gif ГенгисOur ignorance is God; what we know is science.Moderator 20:02, 14 August 2012 (UTC)
Very interesting & very good, but can you cite a source on the 1.15% figure? Is this the assets of FDIC? If the FDIC were to fail (as I understand it, it never was in danger of failing in 2008) this would necessitate some emergency Congressional (and Federal Reserve) action like the TARP program. nobsCorporations are people, too 20:17, 14 August 2012 (UTC)
According to WP the FDIC are mandated to have the DIF at a minimum of 1.15% after it had previously gone as low as 0.25%. Redchuck.gif ГенгисOur ignorance is God; what we know is science.Moderator 20:27, 14 August 2012 (UTC)
Like all insurance, the premiums banks pay for deposit insurance are regulated by the number of anticipated bank failures in the near future, including presumably a fairly widespread catastrophic crisis. And this phrase, "If there is an excess of the number of people demanding money in a day, and the bank cannot come up with the money, the bank becomes insolvent," is incorrect. If the amount of cash withdrawals in a 24 hour period exceed the reserve requirements, the net effect is only a temporary liquidity squeeze, solved by interbank overnight borrowing. Insolvency is when the total claims (not just a claims in a 24 hour period) against the bank exceed bank assets. nobsCorporations are people, too 20:34, 14 August 2012 (UTC)

My understanding is that the "banks" that were bailed out are financial institution completely different from the normal understanding of "place where you get a savings and checking account" understanding of banks. They did not have "depositors", they had investors.Fdof (talk) 05:38, 24 August 2012 (UTC)

There's a difference between investment banks and commercial banks, the latter being the familiar "place where you get a savings and checking account." However, after the partial repeal of Glass-Steagall, these two types of institutions were allowed to merge. Bailouts went to investment banks and insurance groups (e.g., AIG) as well as your merged commercial/investment banks (Citigroup). So letting some institutions, i.e. insurance and investment banks only, fail would have had no direct effect on depositors. Letting anything with conjoined commercial bank fail would have, though. Nebuchadnezzar (talk) 05:59, 24 August 2012 (UTC)
Yes, that's a good understanding of it. The repeal of Glass-Steagall allowed wp:proprietary trading on behalf of a banks own interests. Previously, banks were regulated to use bank capital (that is to say, the bank's own money, not depositors money) only on extremely conservative investments, such as T-bills, or to produce earnings through brokerage on other people's money, not direct investment of their own funds. The Volker Rule is an attempt to regulate proprietary trading, which appears here to stay, cause there is now no un-repealing the repeal of Glass-Steagall. nobsCorporations are people, too 20:32, 24 August 2012 (UTC)

[edit] LIBOR & Fed Funds

In Great Britain interbank borrowing is done at the LIBOR rate. In the United States, commercial interbank borrowing to meet reserve requirements is done at the Federal Funds rate. Please read the citation provided, the Federal Reserve Bank of New York, which states, "Federal funds, or fed funds, are unsecured loans of reserve balances at Federal Reserve Banks that depository institutions make to one another. The rate at which these transactions occur is called the fed funds rate" before reverting. While LIBOR is used in the United States for various other purposes, LIBOR is not the United States commercial banks use for overnite interbank lending to meet reserve requirements. It is the Fed Funds rate, published daily in any newspaper. nobsCorporations are people, too 20:08, 21 August 2012 (UTC)

supporting cites

  • Wikipedia: In the United States, the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend those balances to institutions in need of larger balances" (i.e. reserve requirements).
  • wp:Federal_funds_rate#Comparison_with_LIBOR: Though the London Interbank Offered Rate (LIBOR) and the federal funds rate are concerned with the same action, i.e. interbank loans, they are distinct from one another...

[edit] The Good and Bad

  • In the world of electronic banking, banks can now create "money" out of thin air, through create accounts.

No sure this belongs on the Bad side. Wikipedia says in its wp:Interbank lending market,

  • Low transaction volume in this market was a major contributing factor to the financial crisis of 2007.

Comments (1) banks creating "money" through interbank lending accounts is not new; (2) these new electronic (presumably consumer) accounts appear to be a step to mitigate another "credit freeze". nobsYe shall all perish in flames - Kim Jong-un 09:04, 3 April 2013 (UTC)

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