When $1 million is deposited at a bank that required reserve ration s 20 percent and the bank chooses not to?hold any excess reserves make loans instead then in the banks final balance sheet the liabilities of the bank INCREASE BY ONE MILLION. Can you explain to me why this is the case? |
Because of our fractional reserve banking policies implemented in the early 1900s. And because they make the rules. Read the book "creature from jekyll island" by G Edward Griffin. Excellent analysis of our banking system.
The banking system will keep $1m as require reserve.That will explain the $1 million increase in liability in the first round.But the banks will loan out $5 million,because it can created money =1/0.2 x1=$5million.
