this post was submitted on 24 Jun 2024
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Asklemmy
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Holy shit. I get it! That's a great explanation and I really appreciate your taking the time to type it all out. I'm glad we don't have Lemmy medallions to award but, if we did, I'd give you one. I now see how a 100% reserve requirement, i.e., all deposits completely backed in cash, would entirely change banking.
The only thing that feels weird to me is the virtual money the bank creates doesn't seem go away once it's paid back. For example, if a mini bank only had $1000 and lent $900 with a 10% reserve, they'd end up with $1900 once the loan is repaid (ignoring interest). Or does the $900 they lent create a -$900 for the bank that is cancelled through repayment?
While the loan is outstanding the bank would only have $100 ($1000 - $900 loaned out), so when it is repaid they go back to $1000.
Correct (effectively). Remember how you are "loaning" money to the bank by depositing money in ur bank account? Think about it - if someone loaned you money, and you spent it somewhere, would you have 0 money or would you have negative money (in terms of cash)?
Interestingly, this is why Nordic countries technically have one of the highest wealth inequalities in the world. It's because they easily get home loans as the government acts as their guarantors. Here's a vid to explain this.
Awwww thankssss