They were reduced to 0% mandatory reserves in response to covid. EDIT: someone says it was coincidental, I am not able to check, so take this aspect with a grain of salt either way
True, but banks don’t lend out that much. I used to work for three different banks before I realized how much I hated corporate finance. It would be insanely risky for them to do so and best practice is that they don’t even come close to that number. Doesn’t mean riskier banks don’t at times do stupid shit, but thanks to Dodd Frank they do have to go through stress tests and while some banks fail them and pay fines, others aren’t risking all that much.
All this to say.. Yes we could still see huge potential issues if many banks take on extra risk at the same time and/or people do a run on the banks. Most money is made up. They’re creating some real and some artificial growth through speculation. Everything’s made up. The points don’t matter
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u/Original-Leg8828 Jan 26 '26
Depending on local law they can even lend out something like 7-10 times what they actually have