Quote from: odolvlobo on July 25, 2019, 08:41:05 AM

Quote from: deisik on July 25, 2019, 06:13:02 AM

Quote from: odolvlobo on July 24, 2019, 11:57:53 PM

Quote from: deisik on July 24, 2019, 07:35:23 PM

It is a very common and widespread misconception to think that banks are somehow limited by the deposits that they have received (what fractional reserve is essentially about).

So you are saying that this is a misconception: 12 CFR Part 204 - RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)

It is basically a test on how well you (not necessarily you personally, of course) understand what FRB refers to and is essentially about. Simply put, FRB says that banks can create credit only out of deposits that they have received (using a multiplier, hence fractional), but this is not how the modern banking system works, end of story

I didn't read this regulation (so bear with me) but I guess these requirements demand that a bank should keep some cash in its vaults in case borrowers want to take cash. But that in itself doesn't change anything in the process described above (deposits via credit and not the other way around). The word reserves, or even reserve requirements, doesn't make it fractional reserve banking

And in Canada, for example, there are no reserve requirements (if I'm not mistaken)

You are correct. Canada removed their reserve requirements in 1992; however, lending is still restricted by capital requirements. I am skeptical of your statements because you seem to be unaware of the details

Reserve requirements are there for a reason

These requirements are imposed by the central bank to limit the risks of a possible banking, and more broadly financial, crisis due to massive defaults of borrowers (read, it is not about depositors cleaning up bank's vaults at all). It doesn't always work as planned, of course, which the US subprime mortgage crisis of 2008 has clearly shown, but if there were no defaults, then there would be no reason to artificially limit lending. As I have already explained above, credit money is a collateralized form of money, so it is not like this money is not backed up by anything. It should now be easy to see that these limits have little to do with what FRB generally stands for