CIPL in the Media
Articles filed under category money
How banks work
David French | 2/03/2009 12:33:08 PM
This article was originally published in The Morning Bulletin as "Dogma debates show the better times returning" on 7th February 2009.
How does a bank work? Say a bank attracts a $1.00 deposit. It might keep $0.10 in reserve and lend out the other $0.90. That $0.90 goes round in the economy and is eventually re-deposited in the banking system. Of that $0.90 the banks keep $0.09 in reserve, and lend out $0.81. If nothing adverse happens, this goes on and on until there is no more to lend.