That's in the US. Canada for example never had any legal reserve requirements.

However legal limits aren't the only ones that apply. Canadian banks still keep more than zero reserves around.

The more useful limitation in economic terms and in legal terms is on the amount of capital banks need to hold. A capital cushion is what makes your deposits stable, not reserves.

If you have a big enough capital cushion, you can always go and liquidate some assets to get the reserves needed to satisfy withdrawal requests. Having some reserves on hand is just very convenient, so the customer doesn't have to wait.

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CraigJPerry 2 days ago | parent [-]

Canada is not an exception and operates via the same mechanism https://lop.parl.ca/sites/PublicWebsite/default/en_CA/Resear...

Fractional reserve is a model only for textbooks, it is not an accurate model of how the banking system works in most western economies with a central bank and sovereign currency today.

>> The more useful limitation in economic terms and in legal terms is on the amount of capital banks need to hold

Well this is usually the biggest of several limitations which impact whether a loan would be profitable to make for a bank or not so i don't entirely disagree but this is a legislative control, there's no "economic terms" here because in general no school of economics understands this or has anything to say about this control which you correctly point out exists and is central to loan decision making. People can argue about the degree of centrality because it's not the only factor so let me put it this way: it's central in a way which any notion of "fractional reserve" is simply not.

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eru 2 days ago | parent [-]

Your link barely says anything about private sector money creation and doesn't contradict what I said. I'm confused.

Your view of fractional reserve banking is rather.. unorthodox. Pray, tell me, why do banks bother with deposits, then?

	▲	CraigJPerry a day ago \| parent [-]
		>> barely says anything about private sector money creation It opens with the words "Money is created in the Canadian economy in two main ways: through private commercial bank loans..." the introduction continues "... It also discusses how private commercial banks create money..." And then it goes on to do exactly that in detail. I'm struggling to understand why you wrote that. >> Your view of fractional reserve banking is rather.. unorthodox Unorthodox is not the word to describe what has at this point been published by most of the central banks in western economies with a sovereign currency. From the Fed to the Canadian central bank, from the Bank of England to the Bundesbank and so on. We're unfortunately living in a Copernican moment. We now better understand how money works but we're not permitted to say the earth orbits the sun just yet. It's utterly ludicrous that the idea of Fractional Reserve banking is propagated in today's world as having any relevance to how banking works in these economies. >> why do banks bother with deposits, then Very simply - cost of funds