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on 28-Dec-2015 (Mon)

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Flashcard 6058806540

Tags
#economics #money
Question
Basel rule says something like "The total amount that a bank can [...] is no more than ten times its share capital" - it says nothing about ratio of lending to deposits, like in traditional view of "fractional reserve banking".
Answer
lend out


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Parent (intermediate) annotation

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Basel rule says something like "The total amount that a bank can lend out is no more than ten times its share capital" - it says nothing about ratio of lending to deposits, like in traditional view of "fractional reserve banking".<

Original toplevel document

Mark Wadsworth: Banking made easy
s.5. Quite how the myth that a bank can lend out ten times as much as it takes in deposits (or bonds) arose, I have no idea, it is quite simply not true. The Basel one-tenth* limit is imposed by regulators, so it might be accurate to say that <span>"The total amount that a bank can lend out is no more than ten times its share capital", but that is merely the upper limit, and depends on people wanting to borrow that much.So much to the background6. Modern banking, i.e. 'how banks behave once the government takes its e