"Because bank deposits are usually considered money in their own right, and because banks hold reserves that are less than their deposit liabilities, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying reserves of base money originally created by the central bank.[1][3] In most countries, the central bank (or other monetary authority) regulates bank credit creation, imposing reserve requirements and capital adequacy ratios. This can limit the amount of money creation that occurs in the commercial banking system, and helps to ensure that banks are solvent and have enough funds to meet demand for withdrawals.[3]"
The point about Fractional reserve banking is to allow banks to create debt which is another way to create money. (Debt is money)
This is actually what a lot of people are missing. It's not money thats being created per se but debt (credit) which is the same thing but just in put in a different context.
"banks hold reserves that are less than their deposit liabilities"
If you hold one dollar of a ten dollar deposit and loan out nine, reserves ARE less than their liabilities.
They still owe $10 plus interest to the depositor. They only have $1, on average. That's less than their liabilities. It doesn't say what you think it does.
"the central bank (or other monetary authority) regulates bank credit creation, imposing reserve requirements and capital adequacy ratios"
The reserve requirement is a RESTRICTION on how much the bank can lend. Not a multiplier the bank can apply to deposits to print money.
If the Fed RAISED the reserve requirement, banks could not lend as much. If it completely removed the reserve requirement, banks could lend more.
It's not "Money from the bank" but allowed debt creation backed by the central banks beyond
This is the important part of the quote which you left out.
"fractional-reserve banking permits the money supply to grow beyond the amount of the underlying reserves of base money"
Nothing in that talks about limiting it within their deposits. If that was the case then we wouldn't have had any issues at all since all banks did with the sub-prime crisis was creating debt without any actual "real money" being used as base for the loans.
If they raised the reserve requirement they could not lend out as much but still more than they have because again it's not actually money but debt. It's just that they now have much harder restrictions on the ratio.
Not a single dollar is moved from somewhere else in the bank to the lendee. It's literally just debt created.
Thats at least how I have understood it and maybe we are saying the same thing just focusing on different parts.
The point really is that banks do not actually move money they have to your account but instead create debt on your account without anything else is affected.
It doesn't get more definitive than that. And if it were a multiplier, how much can a bank lend out if they have less than $15 million in deposits? Infinity?
A bank that doesn't loan out more than it has is not involved in FRB.
FRS is the act of central banks allowing banks to add money on accounts up to the ratio amount.
In other words. Banks can create money "out of the blue" since most money are just numbers and not actual cash.
Lending out money this way is not affecting any other accounts. No money is being taken from somewhere and put into the lendees account. Instead banks are allowed to create the loan which is debt, not to the bank but to the lendee. To the bank this is an asset to the lendee this is debt.
In other words the bank have more money after they give the loan not less.
I know you think it works that way. But can you point to any authoritative evidence that it works that way?
A simple statement on a Federal Reserve web site stating that such a bank has to keep deposits and that the loan comes from new money created should be sufficient.
"fractional-reserve banking permits the money supply to grow beyond the amount of the underlying reserves of base money"
I think you misunderstand the meaning of that quote. The money supply doesn't grow beyond the amount of underlying reserves because an individual bank lends out more than it has in deposits (and other funds). The multiplier is the result of this cascade:
https://en.wikipedia.org/wiki/Fractional-reserve_banking#Exa...
