>>11579514There are regulations that basically state that for any amount of loans a bank gives it must keep a certain fraction of that in reserve (usually with the centeral bank or in cash or in liquid accounts or what have you) so the bank can respond to slight changes in the market
As an example say you would form a new bank and deposit 100 buckaroos as intitial funds. You then send that money to the central bank or keep it in a liquid account to act as your reserve and your countrys reserve ratio was 1:10. Now you are authorized to loan up to 1000 bucks to your local community.
This works from the peoples perspective because the people you lend that 1000 bucks (say 50 people with 20 each) are unlikely to spend it simulataneously or with similar payment methods or schedules meaning the bills that come from these loans to you won't ever amount to more than 100 (which you have in the account) and the interest and payments keeps filling your books every month meaning you always stay afloat. It also works from the banks perspective because it's quite literally free money.
The obvious downside is "well what if people do spend their money / can't make their payments / pull out their deposits". The long answer is that the reserve ratio is designed to be so that minor hickups can be absorbed into the ratio while for major disturbances the central bank can give a loan to the smaller banks helping them to deal with the issue. The short answer is that the banking system fails and needs a bailout if the event is large enough.
>>11580860It's always /pol/, if they were actually interested in the topic they would simply search it out in google, instead they are here to get a "gotcha" or simply to bait. Add herbs and create filing of the thread as they say.
