Aiming to cut the levels of yuan in circulation, the People's Bank of China is increasing the banking reserve ratio by half a percentage point to 13.5%.
As for banking, Napolitano calls for an end to fractional reserve banking, and a return to a 100 percent reserve system.
It also means that Islamic banking needs to be full-reserve banking--Western banks typically loan out a multiple of the amount of money they have on hand, or in reserve.
The problem is that in a fractional reserve banking system banks are inherently unstable.
Fractional Reserve Banking would end, as would the Fed and the tiers of banks.
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So, we had a problem, bank runs, brought on by the simple nature of fractional reserve banking.
Without fractional reserve banking, without the Fed, and with sound money there would absolutely be no business cycle.
This is simply true of any system of fractional reserve banking and is the cause of bank runs.
In a fractional reserve banking system, banks are permitted under law to create deposit money out of thin air.
The central bank sets short-term interest rates, and fractional reserve banking is allowed.
In 1694 with the creation of the Bank of England, the practice of fractional reserve banking was given legal permission.
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Fractional reserve banking expands the money supply without regard to real wealth, and this is inflation, resulting in price increases.
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Normally, because of fractional reserve banking, this would lead to a further multiple expansion of bank deposits and the money supply.
This induced artificial variability in the real price of gold, especially during the periodic financial panics that attend fractional reserve banking.
Another advantage of 100%-reserve banking: Banks would need very little equity capital to cover the small risks associated with matching their assets and deposits.
The only possible solutions are either to have full reserve banking (a bad idea for other reasons) or to have deposit insurance.
The Fed sets short-term interest rates, and fractional reserve banking is allowed.
Since December 2008, the U.S. has, in a sense, no longer had fractional reserve banking, because the monetary base has been greater than M1.
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Thus the bank is holding only a fraction of deposits in reserves and is lending out the rest: fractional reserve banking which is what we call the system.
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And the other alternative reading, that they have 32 times as much capital as they do assets makes no sense at all in a system of fractional reserve banking.
Look purely at what fractional reserve banking itself is.
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There are other ways to do it (100% reserve banking for example but that would severely crimp economic growth as everyone since Adam Smith has pointed out) but this is the way that we do do it.
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As you know, the Federal Reserve pays 25 bps to private banking institutions on their excess reserve balances.
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Also, the central bank and the (fractional reserve) banking system would face a nearly irresistible temptation to use their ability to create money to hold the deflation at bay as long as possible.
Overspeculation in real estate construction, specifically commercial properties in major markets like New York, Los Angeles and Dallas were ominous precursors of excessive financial leverage employed by operators, abetted by the reserve city banking community.
The Federal Reserve and the banking system stepped in to prevent a widespread debacle.
Thomas believes the Federal Reserve and other banking regulators need more authority over the currently unregulated lenders who were most active in the subprime market.
In recent months, the Federal Reserve and other banking agencies have issued statements calling on mortgage lenders and mortgage servicers to find prudent ways to resolve loan problems with existing borrowers.
They are a direct result of the housing bubble that was created by the reckless policies of the banking industry and the Federal Reserve, from which the financial industry profited handsomely.
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